Is investing in ASX international companies more challenging than domestic companies in 2023?

Nick Sundich Nick Sundich, May 2, 2023

Investing in ASX international companies is eerily similar to investing in domestic companies. After all, you buy and sell shares and make a return exactly the same – by buying low and selling high. Nonetheless, there are a few things that investors need to bear in mind that they wouldn’t have to if they just stuck to investing in domestic companies.

 

 

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Factors to consider when investing in ASX international companies

There are several factors to consider when investing in an ASX international company. Or for that matter, any company that is based in a foreign country. These factors include political risk, economic stability, and currency exchange rates.

One of the main risks associated with foreign investment is political risk. The political climate in a foreign country can be unstable, and changes in government policies can have a significant impact on a company’s operations. For example, a company operating in a country where there is a high risk of expropriation or nationalization of assets may not be a sound investment.

Economic stability is another key factor to consider when investing in an ASX international company. Different countries have different economic conditions, which can affect a company’s profitability.A company operating in a country with a weak economy may struggle to generate profits, while a company in a country with a strong economy may be more successful.

Currency exchange rates are also an essential consideration when investing in a foreign company. Fluctuations in currency values can cause significant changes in the value of an investment as well as a company’s earnings in the local currency.

To illustrate, an ASX international company may report its earnings in USD but its value in AUD can fluctuate dependent on forex movements. If the AUD appreciated to parity with the USD, it would erode the value in AUD.

 

Rules ASX international companies have to follow (or not)

ASX international companies can either list as a Standard ASX Listing or as an ASX Foreign Exempt Listing. Companies in the latter category are already listed on another exchange and use the ASX as a secondary listing.

ASX international rules are subject to many of the listing rules domestic companies are. These include providing price sensitive information immediately, undertake actions on its home exchange reciprocally in Australia – such as halting shares. And it must appoint one individual responsible for communications with the ASX. It can pick and choose its own financial year although it must meet reporting deadlines, particularly having half-year and full-year results filed within 2 months after the end of the period.  ASX Guidance Note 4 (issued in December 2019) provides more details.

 

Examples of ASX international companies

There are over 200 international businesses on the ASX, more than 50 of which are New Zealand companies. Examples include A2 Milk (ASX:A2M), Xero (ASX:XRO) and Air New Zealand (ASX:AIZ).

The United States and Israel are two markets their fair share of companies. Weebit Nano (ASX:WBT) is the most prominent Israeli ASX international stock, while American companies include ResMed (ASX:RMD), News Corp (ASX:NWS) and Life360 (ASX:360).

In the mid 2010s, there were a handful of companies from China that listed on the ASX as well, but most have since delisted due to difficulties in repatriating funds from China to Australian investors.

 

Investing in ASX international companies can be worth the risk

Investing in an ASX international company is very different from investing in a domestic company. By taking into account the risks associated with political instability, economic stability, and currency exchange rates, investors can make more informed decisions when investing in foreign companies. Understanding the different factors involved in foreign investing can help reduce the risks associated with foreign investment and increase the potential for profitability.

 

 

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