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However, we also understand that investing in foreign markets might seem risky, and hence we bring you this article, highlighting the Canadian and Japanese markets where we can help you build and optimise your investments.
We will talk about the perfect foreign stock market choices for investors looking for minimal risk, viz. Canada and Japan. Both stock markets are highly resilient, and hence act as optimal foreign market investments.
Canada is especially resilient because of the country’s oligopoly of the Big Five banks, creating a banking system that has been cited by the World Economic Forum as among the soundest in the world. The banking system was responsible in a big way in allowing the Canadian market to fare fairly well through the 2008 financial crisis as well as the COVID-19 pandemic-induced downturn.
The Canadian market is also highly cyclical. While this makes the market very predictable in terms of growth and dips, it also contributes to its resilience, which in turn minimizes risk. Despite the cyclical nature, Canada is subject to market speculation as much as US, and so we advise you to do your research well before jumping onto a rising trend.
Investors looking for industry diversification will also appreciate Canada’s mix of growth, value, and dividend stocks across sectors. For example, the Banking sector offers fairly high dividend yields that range between 2% - 7%2. Other strong sectors in Canada are Mining, Gold, and Oil & Gas. The latter, however, might be risky in the long term because of its contribution to carbon emissions.
1 Large-cap companies are those with a market capitalization value of more than $10 billion sourced from Investopedia.com dated March 23, 2022 (https://www.investopedia.com/terms/l/large-cap.asp).
2 Canadian (TSX) Banks Dividend Stocks dated November 13, 2023 (https://simplywall.st/stocks/ca/banks/dividend-yield-high).
3 Performance of stock market over the last five years according to Trading Economics dated October 2023.
On the other hand, the Japanese stock market is dominated in part by consumer durable firms (like Toyota), who are looking at global market needs and developing electric vehicles and hydrogen fuel cell cars. The other dominant sectors and companies in the Japanese market are tech firms like SoftBank Vision Fund, gaming firms like Nintendo, and diversified firms and holding groups like Hitachi.
These sectors and firms offer massive potential for profitability and growth, since most of them are mature multinationals who have evolved to meet the changing needs of the domestic and international markets. Their products and services capture global attention while being sustainable in the long term. Some of the companies, especially the IT firms, make aggressive investment activities, while diversified holding groups offer exposure to multiple sectors, beneficial to investors who prefer moderate risk and a potential for growth and value.
High growth potential, improved profitability, and better returns to shareholders are some of the defining characteristics of the Japanese market, dating back to Prime Minister Shinzo Abe’s structural reforms. This also coincides with Nikkei 225’s resilience and steady growth in the last two decades.
4 Large-cap companies are those with a market capitalization value of more than $10 billion sourced from Investopedia.com dated March 23, 2022 (https://www.investopedia.com/terms/l/large-cap.asp)
5 Performance of stock market over the last five years according to Trading Economics dated October 2023
The Simple Summary
In conclusion, both Canada and Japan are highly resilient stock markets that deserve a closer look, especially for investors looking for minimal risks and high growth opportunities. However, as with any investments, we advise you to stay in the know about market trends and do your research before investing.
Meanwhile, you can continue to make the most of our CIO Insights. For a more hand-held approach to investment opportunities overseas, open an account with DBS if you haven’t already, and connect with our investment advisors.
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