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Going Global - Investing in Foreign Equities

As world markets become more integrated and as capitalism expands throughout the globe, the opportunity to invest internationally becomes more significant. And because Canada represents less than three per cent of the world's equity market capitalization, investors who place their money in global equities are taking advantage of a set of richer investment opportunities.

Prudent international investing is based on diversification of a portfolio. International markets do not always react in the same direction, or the same proportion as domestic markets. This lack of connection in market events provides the beneficial effects of diversification, similar to asset allocation in the domestic market.

As global investing increases in importance, the opportunities to enhance your returns may continue to grow. The asset mix decisions that you make will involve not only deciding what per cent to allocate among stocks, bonds and cash, but also what per cent to devote to international investments.

Five major factors that could affect the performance of international stocks are:

  • Geographic area - The area of the world the investment comes from (North America, Asia, Latin America, Pacific Rim, etc.).
  • Country selection - Analysis has shown that country selection tends to be the major factor in returns on international investments.
  • Asset allocation - The proportion of stocks, bonds or cash will affect portfolio returns as it would in a domestic-only portfolio.
  • Currency translations - The exchange rate between the local currency and your domestic currency can vary, potentially enhancing or reducing return on the stock, regardless of the stock's performance in its local market.
  • Stock selection - Investors should build toward a diversified portfolio of sound companies and industries poised for prosperity. The selection process is similar to that applied in domestic equities.
Overall, investing globally provides investors with access to some of the world's most profitable industries and companies.

The information contained herein is considered accurate at the time of posting. CIBC, CIBC World Markets Inc. and CIBC Investor Services Inc. reserve the right to change any of it without prior notice. It is for general information purposes only. Clients are advised to seek advice regarding their particular circumstances from their personal tax advisors.

CIBC Investor's Edge is the discount brokerage division of CIBC Investor Services Inc., member of the Canadian Investor Protection Fund. CIBC Investor Services Inc. does not provide you with any legal, tax, or accounting advice or advice regarding the suitability or profitability of a security or investment in a CIBC Investor's Edge account. You assume full responsibility for transactions in your CIBC Investor's Edge account and for your investment decisions.

The information on this Web site is general only; it is not intended as specific investment, financial, accounting, legal or tax advice for any individual, and you should not rely on it as such.

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