Tutorial: research a company on a foreign exchange
Your return in a foreign stock is the company's return plus a currency bet you did not ask for.
Look at companies outside your home market without stepping on the obvious mines.
How research a company on a foreign exchange works, in one picture
The same argument as the text, as a chain. Each step is what makes the next one possible.
The basket is an average, and you are not average
If you rent in a city and drive to work, your personal inflation rate in a year of surging rents and fuel can be double the headline. The number is not lying. It simply is not about you.
- 1
Remember you are buying two things
A foreign share is the company plus the currency. A company can rise 20% in its home market while your holding falls, because the currency went the other way. Over long periods this mostly washes out. Over the period you actually hold it, it may not.
- 2
Check the disclosure standard
Accounting rules, audit quality and enforcement vary enormously by jurisdiction. The same word on two income statements does not always mean the same thing, and in some markets it means considerably less.
SteadyShares pulls detailed financials from SEC filings, which are US-only. Outside the US, expect thinner fundamental coverage and go to the primary filings.
- 3
Check that you can actually get out
Liquidity is a risk that appears from nowhere at exactly the wrong moment. In a thinly traded foreign small cap, the bid-ask spread alone can cost you several percent, and in a panic there may simply be no bid at all.
- 4
Check the tax and the withholding
Dividend withholding tax varies by country and by treaty, and can quietly remove a chunk of your income. This is dull and it is worth ten minutes before, rather than a surprise afterwards.
You can name the currency exposure, the disclosure regime and the spread on a foreign position before you take it.
Read next
Your return in a foreign stock is the company's return plus a currency bet you did not ask for.
Screens for the UK, the JSE, Japan, India, China and Hong Kong, each with the local risk that actually drives it.