This article is sponsored by eToro.
Most of us only dabble in the stock market, so it can be hard to keep on top of absolutely everything going on. We tend to stick to what we know, but the latest stock market tips suggest that heading overseas for investments could really benefit your portfolio. In fact, rumour has it that the EU is going particularly gangbusters right now.
So we asked Josh Gilbert, a Market Analyst at the leading social trading platform, eToro, for some tips on how to break into the European market.
Why should we invest globally?
“One of the key points when investing, as we all know, is diversification. Staying local means that you aren’t fully diversifying your portfolio as you’re only exposed to one economic cycle which increases your portfolio risk,” Gilbert told Lifehacker Australia.
“For example, in parts of Australia, we’re currently in lockdown and most retail stores will be affected. Whereas in the UK, they have lifted all Covid restrictions, meaning consumers can get back to normal and retail stores will benefit.”
“Global investments also provide you with opportunities that may not be presented locally. For example, in Australia, there is limited exposure to tech but significant exposure to commodities, and in Europe, there’s considerable exposure to healthcare and pharmaceuticals.”
Should you have a solid local investment base before looking overseas?
“This isn’t a key factor, but understanding where you’re investing is. If you can’t comprehend investments in other regions, then you shouldn’t invest,” Gilbert says.
“However, everyone will recognise plenty of stocks on the US and European markets. The Australian market is relatively small compared to the rest of the world so many investors may feel they can gain better opportunities and access to larger blue-chip companies when looking overseas.”
Why EU stocks, specifically?
“At this moment, European equities are five per cent away from regaining their 2007 all-time high, after underperforming for many years against the US. This means Europe is set to have a rare combination of better GDP and earnings growth than the US,” Gilbert said.
“Europe is the largest market outside of the US for diversifying investments, and with cheap valuations and depressed earnings, the region is expected to see strong growth over the next six to 12 months.”
How do you decide which EU stock is worth investing in?
“Investing in a European stock doesn’t change how investors should do their research and analysis. The fundamental analysis remains the same, and investors should analyse companies to look for solid revenue growth, profits and cash flow,” Gilbert said.
What’s different about investing in the EU stock market?
“It’s a lot like investing in the Australian market, however, you’ll need to find a broker which offers access to European stocks, as not all do,” Gilbert said.
“The European market is a different economy altogether, so investors will need to ensure they understand this. Europe can provide excellent exposure to sectors such as luxury retailers or automotive. As always, you’ll just need to make sure you understand the business before investing”.