Can Foreigners Buy Or Invest In Australian Stock Market?
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There are no restrictions on foreign investment in the Australian and non-Au resident individuals investing in Australia are generally only subject to Australian tax on limited Australian source income and gains. There are a few things to watch out for, in particular taxes, currency movements, and additional dealing costs.
If you are considering investing in Australian stock market, below is all we think you should know!
An overview of the Australian Securities Exchange
The first stock exchange in Australia was founded in 1861 in Melbourne. This was 10 years after the country had its first gold rush and saw Australia’s population rise dramatically from just 430,000 in 1851 to 1.7 million just 20 years later in 1871.
The exchange’s modern history began in 1987, over 125 years later, when the Australian Stock Exchange was incorporated as a result of legislation passed by the Australian Parliament. This market was renamed the Australian Securities Exchange in 2006.
The ASX now ranks in the top 20 among the world’s leading stock exchanges and offers traders a full range of services, including listing, trading, clearing and settlement services for stocks and a wide range of other asset classes.
The ASX opens near the start of the global trading week on Sundays Eastern Standard Time (EST), and its pre-market trading runs from 7 a.m. until 10 a.m. Australian Eastern Standard Time (AEST). Formal trading on the exchange opens at 10 a.m., which translates to 12 a.m. Greenwich Mean Time (GMT) and the market then closes at 4 p.m. AEST (6 a.m. GMT).
Can Foreigners Invest in the Australian Stock Market?
There are no restrictions on foreign investment in the Australian and non-Au resident individuals investing in Australia are generally only subject to Australian tax on limited Australian source income and gains.
There are a few things to watch out for, in particular taxes, currency movements, and additional dealing costs. If you are considering investing in Australia our key message is simple: obtain advice early.
Things to know before you buy shares in Australia
Australia’s economy is the 16th largest in the world with steady growth for 28 years in a row. This growth has also boosted Australia’s stock market, although the ASX is just now recovering from heavy losses sustained during the 2007-2008 Great Recession.
Since early 2009, the ASX 200 benchmark index has risen modestly overall, although it failed to keep up with the more impressive growth seen in the Standard and Poor’s (S&P) 500 Index that serves as the broad benchmark index for the U.S. stock market.
Australia has also become a leader in international trade and the home of many high-tech companies over the past 2 decades. Investing in foreign stocks may require a bit more research than domestic stocks but the advantages can outweigh the negatives if you pick the right investments.
Our list of the pros and cons of investing in Australian stocks appears below to help you get started.
Here are some benefits of participating in the Australian stock market:
Open and globally integrated economy: Australia’s attraction as an investment for global investors stems from the fact that the country’s economy has integrated completely with the world economy. Australia has the world’s 14th-highest GDP, ranks 6th in the world, and 1st in Asia with $1.9 trillion funds under management, according to the Australia Department of Foreign Affairs and Trade (DFAT).
World’s top producer of gold: The resource-based Australian economy is the world’s top producer of gold, uranium, and iron ore. The ASX also has a large selection of mining stocks, which allows you to take an indirect position in gold and other mineable assets.
Stable political and economic climate: Australia’s free-market democracy supports entrepreneurial development and has had a stable government for decades. The country’s skilled and educated workforce competes globally and makes the country a dynamic destination for investment.
Consider these drawbacks before investing in the stock market:
Global economic and stock market decline: A major global economic downturn would adversely affect all stock markets, including Australia’s. The Australian stock market suffered substantially during the 2008 Great Recession, despite its resource and commodity base and demand from emerging Asian markets.
Resource and carbon tax implementation: The Australian government has considered imposing resource and carbon taxes on its mining and other industries. This could affect the country’s ability to attract foreign investment and reduce earnings for the companies affected.
Economy highly reliant on commodities: Because Australia’s economy is dependent on exporting natural resources, a period when commodity prices decline could severely impact the economy and investments in affected Australian stocks.
How To Invest in the Australian Stock Market For Foreigners?
International markets can offer investors exposure to rapid growth industries that might not be available in their home countries. One such market is that of Australia, where industries such as mining and industrial manufacturing are strong.
1. Find the Right Broker
The most important thing when looking to gain exposure to the Australian stock market is to make sure you choose the right broker. Many brokers offer access to international stock exchanges, but this does not always include an Australian exchange.
Before you open an account with any particular broker you should ensure that the broker's offerings meet your requirements. This can normally be done online by navigating to the broker's website and browsing through the investment products section. If the broker you are considering does not have this section on its site, use your telephone.
The major stock exchange in Australia is called the Australian Securities Exchange and is located in Sydney. You should look for ASX stocks listed as an investment product.
2. Open an Account
Having found a broker that offers ASX stocks as an investment product, you must open an account. This can normally be done online, or by downloading an application form and filling it out manually. All brokers will require personal details, such as your name, address, and age. In most cases, a broker will also require a form of proof of identity. This normally involves mailing, or scanning and emailing, a copy of your driver's license or passport and a recent utility bill.
3. Fund Your Account
Once you have received confirmation from your chosen broker that your account has been set up, you must fund it. Many brokers have a minimum funding requirement, which is something you should take into consideration when choosing a broker. The amount with which you wish to fund your account depends on the amount of risk you are willing to take. As a general rule, you should only invest money that you can afford to lose. Once you have decided this, you should deposit your funds into your account. This can normally be done instantly using a credit card or a debit card, or in two to three days with a wire transfer from your bank.
4. Choose Your Stocks and Place an Order
With an active and funded account, you may invest in the Australian stock market. Having performed the necessary analysis and decided on the stocks you wish to purchase, you can place an order online or over the telephone. To invest online, navigate to the ASX section of your trading platform and buy shares in the company of your choice. To invest over the telephone, call your broker and instruct him to buy the shares on your behalf, using the funds in your account. Once the order is filled the investment process is complete.
How much does it cost to buy stocks?
Share prices range from less than one cent to thousands of dollars per stock; however, there are some rules around how much you need to invest.
In Australia, there’s a minimum $500 investment for every new ASX company you invest in. So if Afterpay (APT) has a share price of $50, you’d need to buy at least 10 shares of APT stock if it’s your first time buying.
These rules change depending on which country a stock is from. For example, you can invest as little as a few cents into US stocks, even if it's your first time buying. Some brokers also allow fractional investing where you can buy infractions rather than whole stocks. So say Facebook is priced at $200 a share, instead of investing $200, you could buy one-tenth of a share for $20.
The other main cost you need to think about is the brokerage or commission fee. This is the fee charged by your broker or share trading platform every time you buy or sell stocks. Brokerage fees are around $10-$30 on most share trading platforms – sometimes called "discount brokers" – and anywhere from $50-$150 for full-service brokers.
Other fees charged by brokers include the currency conversion fee (for foreign stocks), account fees, custody fees (for US stocks) and inactivity fees. These are important considerations since any fees you pay your broker will reduce your earnings and impact how much you invest per trade.
Top Best Online Brokers in Australia
1. CMC Markets
Through its offices regulated in major global financial centers, CMC Markets offers Australian traders a wide range of offerings with excellent pricing and its Next Generation trading platform, which is packed with innovative trading tools and charting. CMC Markets has also been rated as Canstar's Broker of the Year for the past eight years.
Founded in 1974 and respected as one of the most trusted brokers in the world, IG offers Australian traders low-cost share trading with excellent trading tools, research, beginner trading videos, and access to more than 8000 international share CFDs.
CommSec is one of the largest online brokers in Australia, providing trading access to 25 exchanges throughout the world. While its shares trading fees are expensive, CommSEC offers traders a variety of trading tools and market research.
4. Interactive Brokers
While Interactive Brokers is not suitable for casual investors due to its complex platform, it is an international trading leader and offers low-cost commissions desired by professional traders. New and casual investors should be aware though of the miscellaneous fees and minimums charged by Interactive Brokers.
Westpac is a more expensive option for Australians. However, the broker provides access to 30 international exchanges, as well as offering free reports, a stock screener, stock recommendations, charting features, and the option for more premium research provided by Morningstar.
Nabtrade offers investors domestic and international trading at competitive prices, with customizable charting, third-party research from four different companies, real-time streaming, company stock and research, a global scanning tool, and more. However, Nabtrade's mobile app has terrible ratings in both the Apple App store and Android Play store.
If you are looking to trade domestic stocks only, BellDirect offers average pricing, with research tools that include consensus research from 20 brokers, daily trading ideas, free conditional orders, and html5 charting technology.
ANZ runs off the popular CMC Markets platform, which means traders have access to the following tools: trading guides to assist first-time traders and trading platforms that offer live news updates, advanced charting, and a stock filter tool.
Amscot offers traders below-average commissions with the established IRESSTrader platform (paid subscription required). Traders also have access to research, raising capital, and advanced portfolio reporting from third-party sources.
Should You Invest in Australian Stocks?
Diversification is one of the golden rules of investing, and investing in another country’s stocks presents a different set of opportunities and challenges for an experienced investor. When investing in Australian stocks, you should consider that Australia’s economy has avoided problems seen in other developed countries in part due to its proximity to emerging Asian markets and its exports of valuable natural resources.
While natural resource and banking stocks seem to be the most popular Australian investments, certain stocks within the country’s tech sector have gained considerably over the past year and they deserve any serious investor’s attention. Investing in Australian tech stocks could also somewhat mitigate the risk of carbon taxes imposed that would impact resource-based industries more negatively.
Australian stocks can be bought through a variety of methods even if you don’t have an international or Australian brokerage account. You can easily participate in the Australian stock market through global depositary receipts (GDRs), ADRs, and ETFs that can be accessed through stock exchanges based in the U.S. and U.K.
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