Filipino investors have found out that investing in stocks is a great way to make returns – with the possibility of beating the returns offered by bank savings accounts. Local blue-chip stocks like SM Investments, Jollibee, Ayala, and BDO have been natural first steps into the markets, but looking overseas can be beneficial for many reasons.
YOUR CAPITAL IS AT RISK
The US stock market is the most established in the world. It’s well regulated, has high trade volumes – which make trading cost-effective – and there are stocks to be found there that offer something extra. This guide will outline why investing in the US stock market from the Philippines makes sense and how to do it.
Table of contents
- US & Philippines Stock Market Performance
- Why Should I Invest in the US Stock Market?
- Can Citizens of the Philippines Legally Invest in the US Stock Market?
- Is There a Minimum Budget Required to Invest in the Philippines?
- How To Invest in the US From The Philippines
- What US Investments are the Wisest to Consider
- Final Thoughts
US & Philippines Stock Market Performance
The benefits of trading US shares from the Philippines extend past them being user-friendly. The flagship stock index for the US market is the S&P 500 index, which contains 500 of the largest US stocks. As the below price charts show, it has recently outperformed its Philippines equivalent.
Between November 2020 and November 2022, the US stock-based SPDR S&P 500 ETF Trust ETF generated a 20.83% return for investors, while the Xtrackers MSCI Philippines UCITS ETF posted a 0.89% loss.
The S&P 500 index includes stocks listed on the New York Stock Exchange and the NASDAQ, which are also two of the largest stock exchanges in the world. Those exchanges list stocks with market capitalisations of trillions of dollars and many of the big-name players such as Apple (AAPL), Microsoft (MSFT), and Tesla (TSLA).
YOUR CAPITAL IS AT RISK
Why Should I Invest in the US Stock Market?
There are several beneficial reasons why Filipinos should consider investing in US securities.
The sheer size of the market means that a wide number of opportunities are available. It might be you want to focus on the tech sector. These growth stocks are all small firms that have the potential to make eye-watering returns. They all also have share prices under $10, which makes it easy to buy into them.
If you want to invest in tech but have a more conservative appetite, then you could consider the FAANG stocks, which all have established business models. The letters stand for Facebook (now Meta), Apple, Amazon, Netflix, and Google (now Alphabet).
It might be you want to invest in dividend stocks, which generate a regular income as well as have potential for capital returns. Or consider the best ethical stocks to buy to tap into the global shift into cleaner energy and better business practices.
There is also the stability and strength of the US dollar to consider. Converting the Philippine peso into US dollars and buying US stocks can act as a hedge against the peso losing value over time. When you sell your stocks and convert the dollars back to peso, there will be an element of FX profit or loss.
Of course, that trade could go against you if the peso strengthens during that time, but it is something to consider if you consider the US dollar to be a safe haven.
Another benefit is diversification of risk. For investors that only invest in Philippine companies, there is always a risk that something may impact the Philippines much more so than in other countries or regions. The preferred way to spread out your risk and achieve a more balanced portfolio is to invest in overseas markets.
Global investors tend to balance their portfolios by as much as 25% or more in shares traded overseas to limit risk and to increase the potential for sharing in global developments that are favourable.
It’s also worth considering the multinational approach of many US stocks. Buying US shares does generate exposure to the US economy, but the biggest corporations take a global approach. Walmart, renowned for its network of US-based supermarkets, generates 26% of its revenue from non-US markets. Oil giant ExxonMobil relies on international sales for 45% of its revenue.
Can Citizens of the Philippines Legally Invest in the US Stock Market?
Citizens of the Philippines have been investing overseas for some time, so there appear to be no significant restrictions for this activity. There are a few issues, however, to keep in mind.
First, in the area of exchange controls, limits and requirements can vary from time to time. Be sure to check with your banker about these rules. There are, however, no regulations in the US that would restrict a Philippine citizen from investing in the US. Once again, validate your plan with a local broker.
Are there any tax consequences to consider? The Philippines does have capital gain taxes and rules for offsetting taxes charged by a foreign jurisdiction. If taxes do apply, you may need to file a Tax Residency Certificate (TRC) with the foreign taxing authority to avail yourself of tax treaty benefits. These rules depend on each individual’s personal situation – it is best to review your plan with a tax expert, as well.
Is There a Minimum Budget Required to Invest in the Philippines?
Brokers set their own minimum balance requirements and it is possible to find some that allow you to open an account with as little as $50. They accept payments made using debit / credit cards, bank transfers, ePayment agents and some even accept crypto.
As a 10% return on $50 is only $5, many investors soon scale up their position size once they get to grips with the basics of how to trade US stocks. If you’re a complete newbie, then a risk-free way to learn to trade is to set up a demo account. These use virtual funds so you can learn lessons about how the market works before using real cash.
How To Invest in the US From The Philippines
In order to take advantage of these opportunities outside of the Philippines, there are two preferred paths to success. You can purchase shares for individual companies on the various US stock exchanges or choose to purchase shares in an ETF that covers a sector of the market or attempts to mimic the returns of the S&P 500 companies. In either case, you will need a broker that can give you access to your chosen investment targets.
IG and eToro are two well-respected international online brokers that can assist you, or there may even be a few local brokers that can perform the task. When selecting a broker to be your business partner, especially when you are choosing one to assist with overseas investing, safety and security are paramount.
There are hundreds of brokers looking to support your move into US stocks. Unfortunately, some of these are fraudulent, despite impressive language and website promises. Size matters, as does regulatory oversight. Choose wisely.
Your initial task is to select a broker, whether domestic or foreign, that can act as the middleman in your investment strategy. After satisfying safety and security concerns, try your hand at the broker’s demo platform to familiarise yourself with all aspects of trading, i.e., buying, selling, executive order options, setting stops and limits, and position sizing. Remember that your strategy may encompass buying shares in an ETF or in specific companies.
In order to activate an international trading account, you will also be required to supply personal identification information in accordance with Anti-Money Laundering (AML) and Know-Your-Customer (KYC) statutes. Once your identity is confirmed, the broker will activate your account and permit you to proceed with funding.
YOUR CAPITAL IS AT RISK
What US Investments are the Wisest to Consider
How should you invest in the US stock market? The NYSE is the world’s largest exchange and offers hundreds of blue-chip securities. Here are just a few that are household names across the globe:
- Alibaba (NYSE:BABA): China’s equivalent to Amazon.
- Citigroup (NYSE:C): Major global banking and financial services institution.
- Exxon Mobil (NYSE:XOM): This company tops the list of the world’s leading energy providers.
- General Electric (NYSE:GE): Major industrial powerhouse in aviation, power, and healthcare.
- IBM (NYSE:IBM): A global technology concern respected for hardware, software, and cloud-based support services.
- Pfizer (NYSE:PFE): Major pharmaceutical firm.
- Visa (NYSE:V): World’s largest global payment processing corporation.
- Wal-Mart (NYSE:WMT): Number One multinational retail marketing corporation.
- Walt Disney Company (NYSE:DIS): Multinational entertainment and media conglomerate.
The Nasdaq comprises major and minor technology companies. Everyone has heard of the tech giants Apple, Amazon, Facebook, Google, Microsoft, Netflix, Intel, and Tesla.
Final Thoughts
Investing in overseas markets, especially in US stock markets, is no longer the daunting task that it once was. Armed with a safe and secure broker of your choice, you, too, can benefit from high-growth opportunities related to today’s most dramatic and promising brands.
Take your time choosing your business partner in the brokerage industry, practise your strategy on a demo platform before committing real capital. This list of trusted brokers includes firms which have been reviewed by AskTraders analysts to ensure they offer the right tools and services to help your trading get off to the best possible start.
