The Best Brokerages for European Stocks?

The US Doesn’t Make it Easy…

Today, we dig into the mailbag and pull out a question from Brad B., who asks El Jefe:

 “Do you have any recommendations or suggestions on brokerages to purchase       European stocks? My brokerage does not purchase on exchanges outside of         the US. I am considering possibly a Schwab account and I’m doing research         on them, however, I thought I would reach out to El Jefe.“

This is a question I first grappled with in 1994, when I decided that I wanted to be a truly global investor… meaning that I wanted to own shares of consumer stocks tied to emerging markets.

I found out quickly that the US financial system wasn’t really made for owning foreign shares.

There were some American depository receipts, or ADRs, that traded on the New York Stock Exchange—primarily big multinationals like Toyota and British American Tobacco and whatnot, foreign companies that were more of a play on the American consumer than they were on emerging-market consumers.

Over in what was the so-called Pink Sheets, you could find a few more that weren’t officially registered as ADRs, but which still had shares trading in the US—companies like Nestle, which again is as big a play on America as anywhere else.

Back then Schwab was the only broker that would grant me access to foreign stocks.

It was through Schwab that I’d originally bought my first foreign shares, Burroughs Wellcome, now lost inside pharma giant GlaxoSmithKline, but at the time an innovative bio-pharma based in the UK that was working on AIDs medicines (this was 1984). I had to ring Schwab’s international desk and place the trade through a live trader, and the commission was more than $50.

Still, even in the early 90s I couldn’t get access to what I really wanted—local consumer stocks in Asia, Africa, the Middle East, and emerging central and eastern European markets. Hence why I started opening brokerage accounts all over the world.

At one point in the mid-2000s, I was trading stocks directly on more than 20 markets through brokerage accounts in New Zealand, Singapore, Hong Kong, South Africa, Zambia, Egypt, and elsewhere.

Today, that game is largely in the past, primarily because the US imposed FATCA on the world in 2010. The Foreign Account Tax Compliance Act—a law that aimed to catch tax cheats, but which really worked to shut Americans out of global financial opportunities.

FATCA basically told banks and brokerage firms overseas that if they have American clients, then they’re required to collect data on those clients and report back to the IRS, or risk fines and losing access to trading dollars, which would be a death sentence for international banks.

Easier to just tell Americans to scram.

Note: Some brokerage firms will still work with Americans, usually. Boom.com in Hong Kong, as well as InvestorsEurope.com in Mauritius. Both give you wide access to a number of primary and secondary markets in various parts of the world. 

For the most part, though, buying foreign stocks as an American today means using US-based brokerage firms, including Schwab, Fidelity, and Interactive Brokers.

Schwab offers access to about 30 international markets by way of a Schwab Global Account or its dedicated Global Investing Services desk, which is the offspring of the trading desk I relied on to trade Burroughs Wellcome back in the day. Just be aware that the fee structure is different from online trades in the US, and you might have additional charges imposed by the foreign market, including stamp duties and whatnot.

Fidelity covers trading about two dozen markets, almost all of them major and secondary markets in North America, Europe, and Asia. You won’t have access to the best emerging markets in Central and Eastern Europe, Southeast Asia, and Africa (aside from South Africa).

You need to enable international trading in your account to access these markets. And as with Schwab, the fee structure will be different than a typical domestic trade.

If you’re truly looking for access to smaller markets where some of the best opportunities exist, then look to Interactive Brokers. It offers stock trading in 40 markets, options trading in 30 markets, and access to certain non-US sovereign bonds and corporate bonds. Through IB, you can trade truly exotic markets like Latvia, China’s A-share market, Brazil, and the United Arab Emirates, among others. (I made good money through an Egyptian brokerage account years ago owning Aramex, a FedEx doppelgänger based in the UAE). 

So, Brad, those are the options: Either look to open a brokerage account at Boom in Hong Kong, or Investors Europe in Mauritius, if they’ll agree to let you in. Or look to one of the three US brokerages that offer broad-ish access to foreign markets.