How to Invest in Foreign Countries

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The survey is done and the results are in. According to the latest poll by U.S. News and World Reports on the "best countries to invest in," the most promising locale is...Malaysia.

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Not the world's most populous country -- China. Not the country with the cheapest 10-year cyclically adjusted P/E ratio -- Russia. And no, not the U.S. either -- though, to be fair, it wasn't included in the survey.

Even if you don't know where Malaysia is, much less how to invest in it, I've got some good news for you. Assuming you don't mind ratcheting up the risk in your portfolio -- exchange rate risk and the like -- international investing really isn't that hard.

With a little help from the internet and exchange-traded funds (ETFs), it's easier than ever to put your money to work in the most profitable markets abroad. As proof, I'm going to tackle the topic of how to make an investment in Malaysia -- even though it's arguably one of the hardest places for an American stock investor to invest.

Why is investing in Malaysia so darn hard?

Why is the country of Malaysia so difficult to invest in? Let's start with the obvious: Malaysia may be the best country to invest in abroad. It may deliver terrific profits -- the Malaysian stock market is up more than 15% this year alone. But there are currently no Malaysian stocks listed on the New York Stock Exchange -- or the Nasdaq either. Zero. Zilch. Tiada. (That's nada in Malay.) 

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That's not usually the case in international investing, where large foreign companies from Brazil, Russia, India, China, and others very often maintain listings on the NYSE or Nasdaq and can easily be bought individually. But it is the case with Malaysia, which makes this remote locale a great lesson in how to invest in foreign countries and foreign stocks, even when you can't technically buy those foreign stocks at all.

Why foreign countries like Malaysia aren't as hard to invest in as they seem

There are still two ways to invest in foreign countries like Malaysia. One way is to buy shares of Malaysian stocks that trade "over the counter" in the U.S. Companies like Malaysia Airports Holdings, Lion Industries, and Supermax Corporation all have stocks that trade on the OTC or OTC "Pink Sheets" markets here in the U.S.

However, stocks sold on the OTC markets can be illiquid, meaning both that you may pay a premium to acquire them, and you may have difficulty later selling large volumes of those stocks at attractive prices. Additionally, because OTC stocks don't have to file financials with the SEC, you may have difficulty finding accurate financial information on the stocks you're buying -- which adds to your investing risks.

A better way to invest in foreign countries, I think -- once you've identified a country you think is worth investing in as a whole -- is to buy the whole country all at once by buying an ETF that tracks the performance of all of the foreign country's various stocks.

How to invest in foreign countries via ETF

Identifying such ETFs is as easy as doing a Google search for: "[country you want to place an investment in] ETF." If you run such a search on "Malaysia ETF," for example, the first name to pop up will be iShares MSCI Malaysia ETF (NYSEMKT: EWM).

What is iShares MSCI Malaysia ETF, exactly? As explained on the ETF's webpage, iShares MSCI Malaysia ETF is a fund that gives an investor exposure to "large and mid-sized companies in Malaysia." With only $436 million in assets, it's not a large fund, but it's specifically "targeted ... to the Malaysian stock market" -- which is exactly what you want, if you're targeting the best foreign stock market to invest in abroad.

With a P/E ratio of 16.7, iShares MSCI Malaysia ETF sells for about a 31% discount to the valuation of the U.S. stock market (as represented by the S&P 500). Best of all, the iShares MSCI Malaysia ETF can be easily bought and sold on the NYSE Arca stock market -- just like pretty much any other big American company (or ETF) you can name.

Investing in foreign countries doesn't get any easier than that -- even if the country you want to invest in is as difficult to access as Malaysia.

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