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What Are International Stocks & Bonds?

What Are International Stocks & Bonds? thumbnail
Globalization of the financial markets provides investors with a world of opportunity.

International stocks and bonds include the equity securities of foreign corporations and the loans of foreign governments and corporations. According to BNY Mellon Asset Management Company, international stock investments as measured by the MSCI World stock index returned an average 3.54 percent each year between 1990 and 2009. International bond investments, measured by Barclay's Global Aggregate index, returned almost 7 percent a year during the same period.

  1. International Stocks

    • Stock represents fractional ownership in a company. International corporations, similar to U.S. corporations, issue stock to investors to raise capital. Shares of international stocks trade on stock exchanges in the home country market or on an international stock exchange, such as New York Stock Exchange Euronext. Multinational companies --- those with operations in several countries --- may choose to list shares on the world's largest stock exchanges. Listing shares on multiple exchanges provides the opportunity to reach more shareholders and a broader distribution of the company's stock. Corporations in developing-country markets may prefer to issue stocks rather than bond loans. Stock issues provide the corporation with long-term access to capital without the need to budget interest and principal repayment expenses.

    MSCI All World Index

    • BNY Mellon Asset Management refers to the MSCI All World Index as a way to measure international stock market performance from 1990 to 2009. The MSCI All World Index includes indices of 45 international stock markets. Investors buy a stock index like the MSCI All World Index to gain broad exposure to many stock markets. Twenty-one of the index's country markets are considered "developing markets." Developing stock markets traditionally provide a higher risk-to-reward ratio to investors. MSCI All World Index's Sharpe ratio for the 1990 to 2009 period averaged --0.03 percent. The risk of investing in 45 international stock markets represented by the MSCI All World Index was high relative to the average 3.54 percent annual return.

    International Bonds

    • International bonds represent the loans of foreign governments and corporations to lenders called bondholders. Bondholders purchase the loans over a known term. They expect to receive return of original principal on the bond's maturity date. In the interim period, bondholders expect to receive coupon payments from the borrower. Foreign bonds may pay coupon interest in foreign or domestic currency units. International bonds, represented by the Barclay's Global Aggregate bond index, provided investors with a similar annual return to U.S. bonds from 1990 to 2009. U.S. bonds returned approximately 7.09 percent; international bonds, an average 6.98 percent. Both U.S. and foreign bonds reflect a similar positive Sharpe ratio during the period.

    Growth of International Bond Markets

    • Global bond markets have increased from about $4 trillion in January 1990, according to BNY Mellon Asset Management, to $30 trillion or more by third quarter 2010. Governments and corporations around the world have issued bond loan debt at historically low interest rates, according to "The Encyclopedia of Money" by Larry Allen. Measuring a country's Gross National Product against the total amount of outstanding debt causes concern among economists and financial analysts. Concerns about Greece's bond market in April 2010 prompted economists to predict a potential government bond domino effect, according to "The Wall Street Journal."

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