There's no need to be scared of US stocks

GIVEN the global influence of American business, it would seem perhaps a little odd that we Brits feel we don&rsquo;t know enough about the largest market in the world to invest in it. This was, essentially, the upshot of research published yesterday by the largest US discount broker Charles Schwab. <br /><br />Based on a survey of more than 1,400 active retail investors based in the UK, the broker found that while investors were more optimistic about the prospects for the US recovery than they were for the UK &ndash; 44 per cent of believe that the US economy and financial markets will recover sooner than those of the UK, with only 28 per cent believing that the UK will recover ahead of the US &ndash; only 17 per cent of respondents who believed that the US would recover ahead of the UK have actually invested in US stocks.<br /><br />But why are British investors shunning the world&rsquo;s largest market? Far from patriotic investors preferring to invest in British companies or because there are perceived barriers to entry, 41 per cent of respondents said it was because they do not know enough about the US market.<br /><br />But to avoid US stocks as a contracts for difference (CFDs) trader is foolish. Not only are you narrowing your options &ndash; more than 6,000 stocks are listed in the US compared to just under 3,000 on the London Stock Exchange, you are also foregoing your exposure to a huge amount of liquidity. According to the World Federation of Exchanges, the volume of shares traded in the US was approximately $3.5 trillion in August alone compared to just $0.24 trillion in the UK during the same period. <br /><br />The US may also be a preferable option to other regional markets because of the common language &ndash; getting hold of English language research reports on Spanish equities is not an easy task.<br /><br />For traders looking to diversify their portfolios, US stocks are probably not ideal &ndash; the make-up is fundamentally too similar to the UK&rsquo;s &ndash; but the US markets offer plenty of opportunities to broaden your trading and to gain exposure to world-class, and especially high-tech, companies. <br /><br /><strong>LIQUIDITY AND CHOICE</strong><br />So with all this liquidity and choice as well as supposed better opportunities in the US, what do CFD traders need to know about the stock markets across the Atlantic?<br /><br />Kully Samra, UK branch director of Charles Schwab, says that while UK investors might need to do that little bit more research on US stocks, it can actually be beneficial to not know the market inside out.<br /><br />&ldquo;Just because you had a good experience with a company, does not mean that you should necessarily invest in it. By not knowing the market well, you are looking more clearly at the stock,&rdquo; he says. &ldquo;You should be investing in the stock rather than the company &ndash; a good company is just an element of your choice.&rdquo;<br /><br />Charles Schwab assesses a stock on the basis of four key areas: fundamentals &ndash; such as price-earnings ratio, dividend yield and return on equity; momentum; valuation; and risk. Momentum looks at broker changes, a company&rsquo;s track record of positive earnings-per-share surprised and its performance relative to the market. Valuation takes into account a company&rsquo;s income statement, its balance sheet and short seller sentiment. <br /><br />CFDs on individual stocks are available through the major CFD providers such as GFT, CMC markets and IG Markets among others. GFT offers CFDs on S&amp;P 500 companies for 2.95 cents per share and a margin requirement of 10 per cent. <br /><br />The US markets are open between 2.30pm and 9pm UK time, which makes trading American stocks ideal for the evening CFD trader. The time difference also means that British traders will have a head start on US investors, as you can spend your morning watching the markets and the US futures. <br /><br />If you would rather take a punt on the whole US market rather than an individual US stock, then you are best to look at the S&amp;P 500 rather than the Dow Jones Industrial Average, which comprises just 30-odd stocks. <br /><br />With a survey from the National Association of Business Economists (Nabe) in the US finding that 80 per cent of the respondents believed the US economy was growing again after four straight quarters of declines, and third quarter earnings looking positive, now might well be the time to start looking across the pond for your CFD opportunities.<br />