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The allure of foreign stocks

THE STAR – As equity markets around the world continue to get beaten down, an interesting prospect faces the Malaysian investor.

With global benchmarks such as the Dow Jones Industrial Average (DJIA) and S&P 500 Indexes trading at forward price-to-earnings (PE) multiples which have come off their record highs, it begs the question of whether Malaysian investors ought to be looking at putting more of their money into overseas markets.

Aside from seemingly toppish valuations of the Malaysian stock market, there is also this disturbing statistic – the Malaysian market has been on a losing streak in the last few years.

In fact, some Malaysians have for some time now, already “given up” on local equities, choosing to focus on investing in overseas stocks.

Take John Lee, a former equity analyst who has been investing his personal and family wealth into the US markets, buying only their blue chips.

“We have lost interest in Malaysian stocks for some time now, choosing to put our money into blue chips in the United States (US) market. Of course, the current downtrend needs to be managed, but overall we are doing okay, returns wise,” he quipped.

Similarly, ex-investment banker turned private investor Ian Yoong Kah Yin said he has been investing in Hong Kong and Singapore stocks for about 10 years.

“It is better to have a portfolio of diversified stocks and securities – diversified by sector, currency and geography,” he said.

“There are tremendous opportunities in the United States, Hong Kong and Singapore markets, especially in the technology manufacturing sector.”

However, Yoong cautioned that a lot of information on overseas stocks remains inaccessible to retail investors.

“They will have to undertake primary research which may not be within the capability of many retail investors. This is especially relevant in the case of the foreign small and mid-cap stocks.

“This is why an alternative would be to invest in exchange-traded funds (ETFs). You have a wide variety of ETFs in the US markets and even in Singapore,” Yoong added.

There are a number of valid reasons why investing abroad is a growing trend among Malaysians.

One is the issue of valuations.

That said, if one goes by the PE ratio – which is often used to value a company based on its current share price relative to its earnings – the local equity bourse seems more attractive now at 14.8 times when compared with the DJIA, which is trading at 16.5 times.

However, closer to home, the Singapore Straits Times Index, which is trading at a PE of 13.8 times, is cheaper than the local FBM KLCI.