How to invest in American and International Stocks from Southern Africa in 2021? That will be the topic of today’s article.
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Table of Contents
Today’s investment opportunities are not limited to geography. If you are intrigued by emerging economies and the explosive growth of markets around the world, you may want to invest in some of them.
For many investors, buying foreign shares allows them to diversify their assets through risk sharing and also gives them the opportunity to face the growth of other economies. Many financial advisors consider foreign stocks to be a good addition to an investment portfolio. They recommend an allocation of 5% to 10% for conservative investors and up to 25% for aggressive investors.
Adding international stocks to your portfolio can help reduce volatility and increase returns. ETFs that track foreign markets make international investing easier.
With over 4,000 publicly traded stocks in the US, why risk foreign stocks?
The answer is that investing in international stocks can lower your risk – and it can even increase your profits.
However, many American investors are investing in companies they know, leading to so-called home market bias.
What’s the right balance? According to a study by Nationwide Financial, the optimal allocation for foreign stocks – when returns are at their maximum and portfolio volatility is minimized – is 40%. However, American investors, on average, invest about 22% in foreign equities.
When you are just learning how to invest in stocks, going global can seem like a challenge. But it doesn’t have to be. Here’s what you need to know about investing in American and international stocks.
How to invest in international stocks?
The easiest way to add international stocks to your portfolio is by investing in US registered mutual funds or ETFs that track foreign markets.
Why are they registered in the USA? To avoid potential risks and costs associated with investing in foreign markets (more on this below). Moreover, since mutual funds and ETFs are baskets of securities, their inherent diversification benefits save you from the onerous task of selecting individual stocks.
These types of ETFs offer many options for international investing – there are funds that are country-specific, region-specific, or that track different types of markets (developed, emerging, or borderline). And they are available through most brokerage accounts.
Once you feel comfortable plunging into foreign waters, slowly grow the international portion of your portfolio – perhaps through dollar averaging, a strategy to regularly buy investments, regardless of their price.
Finally, don’t stray too far from home.
The optimal 40% allocation is aggressive compared to what many experts recommend – 20-25% of your portfolio. How global you decide to go depends on personal preference and your tolerance for risk. But by starting small and gradually expanding in scale, you are likely to find a middle ground for an international stock offering.
What stocks to buy for 2021 – the opinions of 20 US market analysts
Most market strategists polled by CNBC predict that US stocks will continue to rally in 2021 and the S&P 500 will rise 8-22% from current levels.
12 out of 20 analysts from large US financial institutions surveyed by CNBC International believe that the S&P index will rise to 4000-4500 next year. The index closed the trading session on Monday at 3691.96, which is slightly below the high of the close of the current year.
Fourteen strategists described their outlook on stocks next year as “cautiously optimistic.” Three said they were “very optimistic” and three said they were “careful.” Upbeat analysts hoped to continue to stimulate the economy in the United States and roll out the Covid-19 vaccine, which has already begun in several countries, including the United Kingdom.
Four strategists predicted that next year the S&P will be in the range of 3,500 to 4 thousand, and four more expect the index to decline to a range of 3 thousand to 3500.
CNBC offered strategists anonymity in exchange for their opinions. The email survey ran from November 25 to December 3.
Many analysts have expressed uncertainty about the production and distribution of the Covid-19 vaccine. According to Johns Hopkins University, the United States currently reports more than 2,000 coronavirus deaths every day, the highest death toll since the start of the pandemic.
Nonetheless, most analysts remain optimistic about the market landscape next year.
“As we get closer to 2021, the economy will reopen in a recovery, both in the US and around the world. The key to success will be the spread of vaccines and increased global economic activity, ”said one analyst.
“If we see growth and recovery in profitability in 2021 amid low interest rates and an additional stimulus package, we will get a favorable background for risky assets in general,” the analyst continued.
Another respondent described the situation as follows: “We think that low rates, combined with a rebound in the profitability of S&P 500 companies, will push stocks to new highs in 2021.”
Despite the ambitious price targets for the S&P 500, among many CNBC polled, even some upbeat respondents said they would be keeping a close eye on how the pandemic develops and the steps governments are taking to stimulate the economy.
“I predict 15% growth as the world goes online. Central banks around the world have filled the economy with liquidity to the maximum in order to stop the market crash, so that the calmer market conditions give rise to the next stage of the bull run, “- said the analyst, who among potential negative events highlighted the delay in the implementation stimulus measures, another wave of Covid-19 and a possible shortage of vaccines. “
US dollar and other currencies
The strategists shared their forecasts for the currencies. Only three experts named the US dollar as their favorite among the dollar, euro, yuan, yen and pound.
6 out of 20 believe the euro will bring the greatest profit in 2020, with 7 experts choosing the Chinese yuan.
“We expect the euro to be driven by both the eurozone’s rebound from a double recession during the first months of the year and concerns about weak US fiscal and monetary policy along with growing trade and budget deficits,” said one analyst. “You should also look at the Australian dollar due to the rise in commodity prices and the Chinese yuan due to the ongoing economic recovery in China.”
The large institution that took part in the survey predicts that by the end of 2021 the yuan will reach 6.25 against the dollar. The last time the Chinese currency was traded at the level of 6.54 per dollar.
Another respondent predicted that eurozone policies would increase confidence in the recovery of the European economy after the pandemic. “In fact, I think the euro will fall early next year, but then suddenly resume its rally and continue for most of 2021,” he said.
“Europe should break out of the new wave of coronavirus before the US, which will help them recover faster than the US,” the analyst continued. “More importantly, in 2021, the ECB’s policy will remain more flexible than that of the US Federal Reserve.”
Which stocks to give preference to in 2021?
When asked which stocks and sectors investors should bet on in 2021, most analysts responded that they like the low-cost “cyclical” stocks that will benefit from the reopening of the economy after the coronavirus.
Among the stocks that analysts have recommended to buy and hold in 2021 were Exxon Mobil, Chevron, Baker Hughes, Boeing, Qualcomm, Visa and Disney.
“Qualcomm’s stock will hit $ 170 per share by the end of 2021,” said one analyst, who named the company as one of the main beneficiaries of the rollout of next-generation 5G networks.
But overall, the analysts surveyed said quite little about tech companies that are market darlings in 2020. One strategist commented, “Google is still worth buying (12-month target price of $ 2119 apiece) as the company is playing catch-up with other tech giants. Customer spend on advertising is picking up again as demand for tourism and travel slowly recovers. ”
A well-known institutional investor who took part in the survey advised to give preference to emerging markets, predicting the growth potential of the MSCI Emerging Market Index by 18% by the end of 2021.
In August, CNBC International conducted a similar poll of analysts asking for their views on the presidential election. 14 out of 20 at the time predicted a Joe Biden victory.
A few American stocks with dividends for 2021
American stocks with dividends and high returns for 2021. Many investors are attracted to dividend stocks because they offer regular cash flow that is independent of market growth. What’s more, the chances are high that a company with a rich payout history will continue to generate regular dividends. Shares of US companies are represented with a yield of 3% to 13%.
Safer areas for investment will be the consumer goods, information technology and healthcare sectors. These sectors are less sensitive to the global economy than consumer, energy and industrial sectors.
Enterprise Products Partners (EPD)
The yield is 8.9%
Enterprise Products Partners is the largest public limited partnership (MLP). The company provides energy processing services, including collection, processing and storage of natural gas. Bank of America analyst Ujwal Pradhan says the drop in Enterprise by about 30% in 2020 is a reflection of investors not appreciating high-quality returns in the mid-energy space.
In light of poor stock performance, management said it is switching priority from increasing payouts to increasing share buybacks in 2021. Bank of America has a Buy rating and a target price of $ 24 for EPD shares.
8.1% of dividends paid on shares
Enbridge is another leading North American energy infrastructure company specializing in the transportation of crude oil, natural gas and liquefied natural gas. Enbridge shares are down about 20% in 2020, but Morningstar analyst Joe Gemino says replacing the Enbridge Line 3 pipeline could see significant gains by the end of 2021.
Enbridge received construction permits for the pipeline and began construction on 30 November. Gemino estimates that there is an 80% chance the project will be completed, despite several lawsuits related to the pipeline. Morningstar is rated Buy and has a fair value estimate for ENB of $ 43.
The company pays a dividend of 7.2%
AT&T shares fell roughly 26% in 2020, but Bank of America analyst David Barden believes AT&T’s subscription-based business model is generally sound. The stock is also of immense value, as its price is only 8.9 times the projected profit for 2021.
Barden says negative catalysts such as an increase in T-Mobile’s market share (TMUS) and a disruption to traditional media are already fully factored into the stock price. Bank of America has a Buy rating and a target price of $ 36 for AT&T shares.
China Mobile (CHL)
Pays a dividend yield of about 7%
China Mobile is the world’s largest telecommunications company. Like AT&T, China Mobile did not receive much investor attention in 2020, given that the company’s stock has dropped roughly 30% since the start of the year. Morningstar analyst Dan Baker believes China Mobile will be better in 2021. Baker says China Mobile’s scale is helping the company achieve higher ROI than its competitors.
The analyst believes that the company’s shares are priced attractively and are trading about 6.8 times higher than the projected profit for 2021. Morningstar is rated Buy and has a fair value of $ 52 for CHL shares.
Vodafone shares dividend 6.2%
Vodafone is a leading telecommunications company in countries such as Germany, Italy and Spain. Vodafone shares are down roughly 13% in 2020. CFRA analysts say Vodafone’s Fit for Growth cost-cutting initiative is having a significant impact on margins.
The company is well positioned to generate free cash flow of $ 7.3 billion in fiscal 2021. year. Vodafone is also in the process of selling its tower assets, which could help improve its balance sheet and focus its core business. CFRA has a Buy rating and a target price of $ 19 for VOD shares.
Total SE (TOT)
The company pays dividends of 7.1%
Total SE is a global oil and gas company headquartered in France. Shares are down about 20% in 2020, but Bank of America analyst Christopher Kuplen says that Total’s share price gap does not reflect its core fundamental business. Kuplen believes that the 7.1% cut in Total’s debt capital ratio and dividend is unmatched by its major oil peers.
Total can organically fund its dividend with Brent crude at just $ 40 a barrel. And its renewable energy subsidiary offers highly desirable growth opportunities. Bank of America is rated Buy with a target price of $ 51.50 for TOT shares.
Philip Morris International (PM)
The company pays 5.8% of dividends
Philip Morris International is one of the largest tobacco companies in the world and the parent company of brands such as Marlboro, Parliament and L&M. Tobacco sales are relatively recession-resistant, and Philip Morris shares fell only slightly in 2020, down about 3%.
Morningstar analyst Philip Gorham says cigarette volumes are likely to continue to decline in the long term, but Philip Morris’ Unsmoke campaign is helping to shift the company’s business from cigarettes to next-generation tobacco products such as flammable gases, heated tobacco and vaping. Morningstar has a Buy rating and a target price of $ 98 for PM shares.
Phillips 66 (PSX)
5.2% dividends are paid on shares
Phillips 66 is one of the largest independent refineries in the world. Phillips 66 was hit particularly hard in 2020, dropping about 35%. The introduction of the coronavirus vaccine should trigger a tipping point in petroleum product demand, analyst Glickman predicts Phillips 66 earnings per share will rise from 2 cents in 2020 to $ 3.70 in 2021.
Meanwhile, investors receive a 5.2% dividend for their patience. CFRA has a Buy rating and a target price of $ 73 for PSX shares.
Gladstone Investment Corp. (GAIN)
Current yield: 8.2%
Gladstone is a Business Development Company, or BDC. This class of publicly traded corporations looks more like a private equity fund or hedge fund than a traditional business. The company invests in other firms through debt and equity and then shares the success with shareholders. Gladstone primarily targets “low to mid market companies” or businesses that have revenues between $ 20 million and $ 100 million.
Thanks to strong management and a solid investment portfolio, the company continued to generate strong returns despite the pandemic. As a result, its monthly dividend is up slightly from last year, even though other stocks cut their payouts in 2020.
Horizon Technology Finance Corp. (HRZN)
The company pays dividends 9.3%
Horizon is another top monthly dividend stock that generates income from investments in other companies. As the name suggests, the company primarily offers funding to the tech sector. While the stock certainly took a hit in March amid the worst volatility caused by the pandemic, HRZN’s stock is now slightly up from the same period last year – and most importantly, the company has continued to pay non-stop 10 cents in 2020.
With a portfolio that includes biotech stocks as well as more traditional tech and media companies, Horizon is well positioned to continue to succeed.
LTC Properties (LTC)
Current yield: 5.9%
LTC is one of the most stable rates on Wall Street, both because of its structure as a real estate investment fund, or REIT, which generates money through regular rent checks, and because it operates in a specific sector. which is one of the most reliable in the world. This is, of course, healthcare for the elderly. LTC operates nursing homes, nursing centers, and other medical facilities that serve American seniors.
There were 52 million Americans aged 65 and over in the world by 2018, according to the US Census Bureau, but it is estimated that this number will roughly double by 2050. This robust revenue stream and near-definite future prospects allow for a significant and reliable dividend distribution for shareholders.
Why invest in international stocks?
There are two good reasons for international investment:
Although there are thousands of stocks available to invest here in the US, diversification is about more than just the number of things you own. True diversification means investing in things that work in different ways and are subject to different risks. Owning stocks both in the US and abroad can help you achieve this diversification.
The United States has the world’s largest stock market and economy, but some other countries are growing faster. This means that there are great opportunities both in individual non-US companies and in overseas markets in general.
Risks of international equities
While international stocks expand the field of investment opportunities, they also carry additional risks.
The relatively new financial markets, commonly known as emerging markets, can be much more volatile than US stocks. This could be due to political factors, economic instability, weaker regulatory oversight, or extreme cycles of speculation and panic.
Investing in international stocks is also associated with foreign exchange risk. If a country’s currency depreciates against the US dollar, any gains on stocks traded in that foreign currency will be reduced when converted back to US dollars.
Even if foreign shares are traded in the United States, the value of a company’s earnings may be reduced in dollar terms if this profit is made in currencies that have been impaired. A decline in the value of these gains could negatively impact the performance of US-traded stocks.
How to invest in stocks from Southern Africa?
Online brokers and robo consultants make it easy for ordinary investors to invest in international stocks.
With an online brokerage account, you should be able to invest in foreign companies that trade on US exchanges, as well as in index or other funds designed for foreign or global investment.
Some brokerage accounts may even make it easier to buy stocks on foreign exchanges. However, you should check the possibility of such trading before opening an account. It may also incur additional costs.
Robo-consultants build portfolios based on your financial situation and goals. The models used to build these portfolios may include foreign equity deductions, usually foreign index funds.
If you want to make sure that foreign investment is included in the portfolio the robot advisor has created for you, check if the robot advisor’s models include foreign stocks.
In an increasingly global economy, foreign companies constitute a significant portion of the world’s markets. This is a good reason why they should also represent some portion of your investment portfolio.
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