Asian investors are drawn to US stocks. Companies like Apple, Tesla, Nvidia, and Amazon are more than just corporations. They are globally recognized brands that happen to be publicly listed. It's like being a part of something more than a company.
That emotional pull is real. However, the practical issues are just as real.
Time zones are the biggest challenge for Asian investors. fxcm The New York Stock Exchange opens at 9:30am New York Time. That translates to 10:30pm in Malaysia. US stock traders in Malaysia are either nocturnal or have to become one. Pre-market and after-hours sessions exist, but trading volume is significantly lower. Gaps can open up at the start of the regular session.
Currency conversion costs can accumulate over time. Investors must convert MYR into USD to purchase US equities. Every exchange includes a spread. Any dividends received are in USD. Bringing the profits back to MYR incurs another conversion fee. It's not a deal breaker, but it's important to account for it when calculating returns.
Many Asian investors are surprised by dividend taxes. A 30% withholding tax applies to dividends paid to non-US investors, but can be lower under tax treaties. Investors in Malaysia should review their tax situation and factor this into dividend yield calculations.
Earnings season brings heightened volatility to US stock prices. 10%, 15%, 20% stock price swings on quarterly earnings. A company may beat earnings but offer weak guidance and still see its stock drop. Logic often takes a back seat during earnings week.
Fractional shares have opened the door for more investors. Before fractional shares, expensive stocks demanded large upfront investments. Fractional investing allows smaller investors to invest in companies they would otherwise not be able to.
Sectors are more important than stock selection. Technology dominates US indices, introducing concentration risk that is often underestimated. Inclusion of sectors such as healthcare, consumer staples, financials and energy helps to create a portfolio that doesn't fall apart if one sector underperforms.
The US market puts value investing to the test. Price-to-earnings multiples are outrageous by other market standards. Future growth expectations are already priced in. When they are not met - even by a whisker - corrections are brutal.
Long-term compounding in strong US companies has proven effective over time. Short-term trading in those markets has wiped out wealth just as surely.