A guide to trading in US shares

PHOTO: A guide to trading in US shares

Factors to consider before investing

As many investors know all too well, Singapore shares are stuck in the year-end doldrums, so now might be the time to see if Uncle Sam has better prospects in store.

US-listed shares have been in the limelight recently, thanks to Wall Street's blistering performance.

The US central bank's money- printing programme continues to boost equity values and has sent the three main stock indexes in New York - the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite - to record heights recently.

Singaporeans will be familiar with stocks making the headlines.

Search giant Google vaulted past US$1,000 (S$1,250) for the first time in October on continued optimism over the firm's dominance in the mobile and online space. Google's stable of brands includes mobile device software Android and video-streaming site YouTube. Other top stocks include Apple; energy giant Exxon Mobil Corp; and the Warren Buffett-led Berkshire Hathaway.

Several brokerages say the US bourse is the most popular foreign market for Singapore investors.

Mr Boh In Cher, head of iOCBC at OCBC Securities, says that at his firm, the US is tops, followed by the Hong Kong market and Malaysia.

With the local market seemingly stuck in first gear in the lead-up to the festive season, investors may want to cast their sights on the offerings stateside.

The Sunday Times takes you through the process of buying and selling stocks listed in the United States.

Choosing a brokerage

One of the most important steps is choosing the right brokerage so your trades can go through without a hitch. The brokerage will usually be responsible for safekeeping of your stock and distributing dividends.

Charges can vary quite a lot.

The easiest option is to go with a Singapore broker - such as DBS Vickers Securities, OCBC Securities, UOB Kay Hian, Maybank Kim Eng, CIMB Securities or Phillip Securities.

Brokers will typically have access to global markets so you can buy US shares through them too.

The commission per online trade is around 0.3 per cent to 0.35 per cent of the value, subject to a minimum of US$20 or US$25. This will be higher if you ask your remisier to trade for you.

The second option is through the platform provided by a bank, such as Standard Chartered or Citibank. StanChart charges 0.25 per cent with no minimum fee per trade while Citibank charges between 0.3 and 0.35 per cent depending on trade size, with a US$29 minimum fee.

The third option is through a US or global broker or a discount broker. Companies like E*Trade and Saxo Capital Markets have branches in Singapore. Both require a minimum deposit before you can set up an account. There may be other fees for such brokers. For instance, E*Trade charges US$25 each time you withdraw money from your account via wire transfer.

E*Trade charges US$9.99 per trade regardless of size and Saxo charges two US cents per share, with a minimum of US$15.

Regardless of the broker you choose, there are also small fees paid to US regulators but these apply only when you sell shares. These include the Securities and Exchange Commission (SEC) fee - 0.00174 per cent of the trade value.

You will also need to pay Singapore taxes on some of these charges in the form of GST. Do note that you may need to go with the exchange rates with some of these firms if you have only Singdollars.

Forms and declarations

You will need to fill in some forms before you can buy shares, including the US one known as the W-8BEN. Your broker or banker should be able to help you with this.

There are also requirements from Singapore regulators. Customers will have to acknowledge that they have received a copy of the risk warning statement from their broker and have understood the risks before transacting in any overseas-listed investment products, says OCBC's Mr Boh.

Buying and selling shares

One big difference between the US and Singapore markets is that Wall Street does not have minimum trade sizes, while Singapore stock typically trades in "lots" of 1,000 shares each. This means US trades can be very small if you wish - even as low as one share.

You should also note the trading hours. New York trades from 9.30pm to 4am in Singapore time during the summer months, and from 10.30pm to 5am in winter.

Make sure you know when the US switches into - and out of - daylight saving time.

There are many websites for you to get US stock information, such as Yahoo Finance, though prices may be slightly delayed.

Your brokerage may offer "live" or delayed stock prices. US exchanges charge for providing "live" prices, though your broker may absorb all or part of it.

Most long-term investors will find it sufficient to work with slightly delayed prices and thus can save on "live pricing" fees.

Keeping shares and collecting dividends

Your shares will generally be kept with your broker or bank, and the custodian fees vary. Your broker is also responsible for distributing dividends to you.

Singapore brokerages will generally charge you $2 per counter per month plus GST. This can be waived if you execute a certain number of trades a month while some brokerages may offer a cap such as $150 or $200 per quarter.

Citibank's custodian fees every month are 0.01 per cent of your monthly average stockholding balance. There is a cap of US$100 every six months.

StanChart does not charge custodian fees, and the same goes for many US and global brokers like E*Trade and Saxo.

Your stocks may issue dividends but the first cut of it will go to the US government, which will impose a 30 per cent "withholding tax" straight up.

Singapore brokers typically charge a handling fee for dividends ranging from $1 to more than $50, depending on the size of the payout. Several brokerages have settled on around $10. After they get their cut, the remaining amount will be put into your stock trading account, and you can have it mailed to you in a cheque or deposited in your bank account via Giro.

The brokers may also charge you various corporate action fees for events such as rights issues.

Citibank, StanChart, E*Trade and Saxo credit the dividends into your account and do not charge a dividend handling fee. E*Trade charges US$25 per withdrawal from your account.

Mr Boh says: "Customers should be aware of certain risks such as foreign custody arrangements, settlement as well as legal and foreign exchange as these may affect the value of their investments."

Note also that US tax laws can be fairly complex. You should, for instance, ask your broker if your holdings will be subject to estate taxes if you pass away.

Time to buy?

It seems to be one long list of administrative processes and fees, but once you have got over that you can start on the actual investing process. The big question is whether now is the time to buy US shares.

The US Federal Reserve's money- printing programme has inflated Wall Street's stock prices and several economists warn of a bubble.

This occurs when prices increase far above the market's fundamentals. When a bubble bursts, people can lose massive sums of money in a short time and a financial crisis can ensue.

"In many countries the stock price levels are high... that could end badly," said Professor Robert Shiller, one of the three winners of this year's Nobel prize for economics. "I find the boom in the US stock market most concerning."

Media reports last week also quoted him as saying the US economy was "still weak and vulnerable".

Prof Shiller should know a thing or two about bubbles - he called the dotcom bubble in 2000 and warned of the US housing bubble in 2005. The US property market duly crashed in 2007 and 2008, leading to the global financial crisis.

But not everyone is worried.

Ms Lee Spelman, head of the US equity client portfolio management team at JP Morgan Asset Management, expects a 10 per cent return from the US market next year - about 2 per cent from dividends and 8 per cent from price rises.

She notes the "decent" economic growth in the US, adding that American firms will be able to gain from global growth due to their international exposure. She likes "innovation" stocks, such as those in the information technology sector; biotechnology firms; and firms that will profit from the shale oil and gas energy boom in the US.

One of the funds in the JP Morgan stable is the US Value Fund.

The fund's factsheet showed that at the end of September, its top five holdings were lender Wells Fargo & Company, energy giants Exxon Mobil Corp and Chevron Corp, drugmaker Pfizer, and credit card issuer Capital One Financial Corp.

jonkwok@sph.com.sg


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