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How to Invest in the US Stock Market From the Philippines

Updated: 13 Dec 2021

One aspect of the COVID-19 pandemic is that more people are working from home. A large number of these individuals have also become active investors, benefiting from the advent decades back of online broker trading platforms and easy access to both local and overseas stock markets. Reports from firms like Bloomberg have confirmed this fact, citing that at one brokerage, new accounts from Filipino citizens doubled since the early days of a global lockdown.

The presumption is that many of these new investors are professionals, but the need to invest in the future applies to all citizens, including non-professionals. While the majority of these new investors have focused on the Philippines stock market and its very capable blue-chip stocks like SM Investments, Jollibee, Ayala, BDO, and a host of others, it would also behove all investors to consider investing in overseas markets, especially the US Stock Market.

The Philippines Stock Market may still be a potential growth region when a full post-COVID recovery takes hold of the global economy. A cursory review of the chart history of an Exchange-Traded Fund (ETF) that follows the major firms in the Philippines would suggest that these companies are positioned for solid growth. COVID did cause a pullback, yet these stocks have recovered to just below pre- COVID levels, thereby confirming that investors foresee more good times to come on the road ahead.

Philippines Stock Market ETF

Source: IG

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A similar index for the US Stock Market, however, only depicted a slight pullback, then a continued acceleration upward. The takeaway is that the US Stock Market is large, stable, and capable of more growth opportunities than single regions of the world. The S&P 500 grouping of stocks, for example, is often cited as representative of the entire global economy because more than 40% of its participants’ revenues are derived from overseas markets.

The New York Stock Exchange and the Nasdaq are also two of the largest stock exchanges in the world, with thousands of securities listed and a market capitalisation that is in the trillions of dollars. Many of the global brands that are familiar in our lives are traded on these exchanges. When analysts refer to heavy growth issues, the term ‘FAANG’ is often used. The letters stand for Facebook (now Meta), Apple, Amazon, Netflix, and Google (now Alphabet). The list goes on and on, but the point is that there are more opportunities to choose from and may that will grow more rapidly than local brands.

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.

In order to take advantage of these opportunities outside of the Philippines, there are two preferred paths for 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 Group 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, if not thousands, that will seek your business. Unfortunately, some of these are fraudulent, despite impressive language and website promises. Size matters, as does regulatory oversight. Choose wisely.

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, individuals are limited to US$500,000, but these 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 so that it is best to review your plan with a tax expert, as well.

How to invest in the US from the Philippines

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 either case, your broker will set up a nominee account. In this context, the broker will actually own the foreign shares on your behalf. This type of account allows for easy buying and selling on a market outside of the Philippines. 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.

Is there a minimum budget required?

Each broker will have set up numerous methods for funding in addition to a standard banking wire. Choose the method that works best for you in terms of convenience and cost. Accounts are typically set up in US dollars, but some brokers will allow for the euro, the British pound, and the Japanese yen. As for a minimum deposit amount, it can vary from zero to a few hundred dollars, but when buying US securities, you can invest in proportional shares of US securities for as little as $50.

Why should I invest in the US Stock Market?

There are several beneficial reasons why Filipinos should consider investing in US security offerings. The sheer size of the market offers a broader selection of potentially profitable situations, and the stability and strength of the US dollar provides a hedge for the Philippine peso over time. The strength of the US economy is born out by the weekly index of technology stocks presented below:

US tech 100 chart invest philippines

Source: IG

Stocks in this index barely noticed the COVID-19 dip in 2020 experienced in other markets. They continued to grow upward while Philippine stocks flattened out. Diversification would have been achieved by investing in both markets, thereby resulting in a net positive gain for the period.

What 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: China’s equivalent to Amazon.
  • Citicorp: Major global banking and financial services institution.
  • Exxon Mobil: This company tops the list for the world’s leading energy providers.
  • General Electric: Major industrial powerhouse in aviation, power, and healthcare.
  • IBM: A global technology concern respected for hardware, software, and cloud-based support services.
  • Pfizer: Major pharmaceutical firm now known for COVID-19 vaccines and therapies.
  • Visa: World’s largest global payment processing corporation.
  • Wal-Mart: Number One multinational retail marketing corporation.
  • Walt Disney Company: Multinational entertainment and media conglomerate.

The Nasdaq comprises major and minor technology companies. Everyone has heard of these tech giants: Apple, Amazon, Facebook, Google, Microsoft, Netflix, Intel, Tesla, and on and on.

Concluding Remarks

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, practice your strategy on a demo platform before committing real capital.

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