This "Overseas Investment White Paper" mainly introduces overseas investment knowledge to individual investors in mainland China, including the significance of investment, available markets and targets, investment plans, and issues that need attention.
1. The Role and Significance of Overseas Investment
- From the perspective of asset allocation: Overseas assets are part of an individual’s overall asset allocation. Reasonable allocation of overseas assets can enhance long-term portfolio returns and reduce risk. For example, combining investments in US and A-shares can increase returns while reducing risk.
- From the perspective of consumption needs: From an asset-liability management perspective, if there is a need for overseas consumption expenditure, such as overseas travel, studying abroad, or purchasing assets, allocating overseas assets can match currency needs and avoid the risk of currency mismatch.
2. Overseas Investment Channels and Targets
- Overseas stock markets: The US market is large in scale and has a high share of economic output. Many listed companies have global operations, making it an important choice for mainland Chinese investors for overseas investment. However, the US stock market is dominated by institutional investors, making it difficult for individual investors to obtain excess returns. Index funds are preferred for investing in US stocks. Meanwhile, there are also investment opportunities in other overseas markets, but currently, there are relatively few products suitable for individual investors in mainland China.
- Risk and return characteristics of US stocks: In the long run, the S&P 500 Total Return Index has an annualized return of about 10%. Most years it achieves positive returns and outperforms the risk-free rate, but it has also experienced several significant declines, with a maximum drawdown of about 50%.
- Allocating US bonds: Investing in US bonds can diversify risk. US bonds have low correlation with stocks, and during stock market panics, US Treasuries often become safe-haven assets. However, US bonds are affected by various factors and are relatively volatile. Chinese investors also need to consider the additional impact of exchange rates when investing.
- Investment channels: Individual investors in mainland China can invest in overseas markets through QDII funds and mutual recognition funds. However, both have quota restrictions. QDII funds also involve overseas taxation, and both types of funds differ from ordinary public funds in terms of sales arrangements and redemption settlement times. Investors need to make proper capital arrangements.
3. Solutions to Meet the Overseas Investment Needs of Mainland Chinese Investors
- Reasonable stock-bond allocation: Investors should determine the stock-bond allocation ratio based on the duration of funds and risk preference. For long-term funds and high-risk preference investors, the stock position can be appropriately increased; for short-term funds and low-risk preference investors, the stock position should be reduced.
- Selection of investment targets: For the stock portion, options include the S&P 500 Index, S&P 500 Equal Weight Index, and Nasdaq 100 Index, etc.; for the bond portion, since there are no funds investing in US bond indices, actively managed overseas bond products need to be selected, taking into account the fund’s holdings, management team, investment philosophy, fees, and ratings.
- Impact of exchange rate changes: Exchange rates will affect overseas investment returns, with varying degrees of impact on different asset classes. The impact is greatest on currency investments and smallest on stock investments.
4. Future Outlook: There are currently some limitations in overseas investment, such as limited market coverage and few overseas bond product choices. In the future, investment in other markets can be increased, better overseas bond products can be selected, other asset classes and stock-bond varieties can be added, and investors should also optimize asset allocation ratios according to their own circumstances.
5. Postscript: Trump's implementation and suspension of reciprocal tariff policies has triggered volatility in global financial markets. In the face of such uncertainty, investors should remain calm, assess the impact on their own finances, optimize their investment portfolios, and reserve emergency funds.
