Investing

NYSE vs Tokyo exchange

  • Last Updated:
  • Feb 22nd, 2021 1:45 am
[OP]
Deal Addict
User avatar
Oct 15, 2003
1174 posts
15 upvotes
Vancouver

NYSE vs Tokyo exchange

Hi guys,

If I were to invest into a Japanese company, is there any benefit at all towards investing into the Tokyo exchange instead of the New York one if the company is listed under both?
I am just wondering since I can't seem to buy from the Tokyo exchange in Questrade, but want to know whether it will be worth it to open another account with Interactive Brokers or something.

Also, if the Japanese company has dividends, under what circumstances would it be wise to still invest in a TFSA? I know there is a withholding tax on dividends (20% or 15%).
Currently I only have a TFSA so I was just going to have everything under one account for simplicity's sake.
16 replies
Deal Addict
User avatar
May 11, 2014
4469 posts
5245 upvotes
Iqaluit, NU
Japanese withholding tax on dividends is 5% or 15% most likely 15 as you probably won't own 25% of a company

also you technically can buy stock on the TSE with Questrade by calling the trade desk, but it costs at minimum $195 commission or 1% fee, whichever is greater. (So no dice?)

https://www.canada.ca/en/department-fin ... -1999.html

For ease of transaction ADRs are much more convenient, however if you are targeting specific companies or want to be able to trade in the evenings in Canada, then consider IB. Some ADRs also have fees charged by the custodian bank. adr.com is a great resource to look up some ADRs, both sponsored and unspobsored, but note not all ADRs are there.
however, my word of caution is what exactly is it in Japan that you specifically are targetting Japanese companies? While there are definitely value plays or investment opportunities, complicating your investments makes it tougher and you will also have to pay fees. Another alternative is HSBC with a percent based commission.
https://www.hsbc.ca/investments/investd ... l-trading/

The drawback with using a TFSA is the tax withholding. the current Japan Canada Tax treaty does not cover TFSA so you are still liable to paying withholding and due to the nature of the TFSA, the CRA will not allow you to claim foreign tax credit on this amount. That being said, if the stock doesn't pay or not that high a dividend, is that really a bad thing?

The best thing to invest in your TFSA is the highest growing asset that is eligible dividend or not. sounds incredulous, but that is the truth. When the dividend tax doesn't matter to the overall growth is when it's fine in a TFSA.
Just keep in mind, if you are faced with barriers such as extra taxes, higher commission costs, limited liquidity etc. Is it really worth the trouble?

I think honestly it isn't. It's already trouble enough to balance this when I have a brokerage account in Japan.
Support your local Credit Union!

Sask Pension Plan Upto $6600/yr in Credit Card spending on RRSP contributions
http://forums.redflagdeals.com/sask-pen ... ns-2167222
[OP]
Deal Addict
User avatar
Oct 15, 2003
1174 posts
15 upvotes
Vancouver
xgbsSS wrote: Japanese withholding tax on dividends is 5% or 15% most likely 15 as you probably won't own 25% of a company

also you technically can buy stock on the TSE with Questrade by calling the trade desk, but it costs at minimum $195 commission or 1% fee, whichever is greater. (So no dice?)

https://www.canada.ca/en/department-fin ... -1999.html

For ease of transaction ADRs are much more convenient, however if you are targeting specific companies or want to be able to trade in the evenings in Canada, then consider IB. Some ADRs also have fees charged by the custodian bank. adr.com is a great resource to look up some ADRs, both sponsored and unspobsored, but note not all ADRs are there.
however, my word of caution is what exactly is it in Japan that you specifically are targetting Japanese companies? While there are definitely value plays or investment opportunities, complicating your investments makes it tougher and you will also have to pay fees. Another alternative is HSBC with a percent based commission.
https://www.hsbc.ca/investments/investd ... l-trading/

The drawback with using a TFSA is the tax withholding. the current Japan Canada Tax treaty does not cover TFSA so you are still liable to paying withholding and due to the nature of the TFSA, the CRA will not allow you to claim foreign tax credit on this amount. That being said, if the stock doesn't pay or not that high a dividend, is that really a bad thing?

The best thing to invest in your TFSA is the highest growing asset that is eligible dividend or not. sounds incredulous, but that is the truth. When the dividend tax doesn't matter to the overall growth is when it's fine in a TFSA.
Just keep in mind, if you are faced with barriers such as extra taxes, higher commission costs, limited liquidity etc. Is it really worth the trouble?

I think honestly it isn't. It's already trouble enough to balance this when I have a brokerage account in Japan.
Thank you so much for such a detailed explanation. I really appreciate it. I am trying to find stocks with high future growth at the moment. The fees for Tokyo stocks would just be the transaction fee of the trading platform and dividend withholding tax, correct? I was thinking perhaps it would be good to diversify and have some yen securities as part of my portfolio, but perhaps the listing on the NYSE would be simpler in hindsight. :)
Deal Addict
User avatar
May 11, 2014
4469 posts
5245 upvotes
Iqaluit, NU
Leshita wrote:
Thank you so much for such a detailed explanation. I really appreciate it. I am trying to find stocks with high future growth at the moment. The fees for Tokyo stocks would just be the transaction fee of the trading platform and dividend withholding tax, correct? I was thinking perhaps it would be good to diversify and have some yen securities as part of my portfolio, but perhaps the listing on the NYSE would be simpler in hindsight. :)
Not exactly sure what you are targeting with Japanese stocks and growth. Growth isn't generally done through picking a country unless it's emerging and then you would buy the index. Being Japanese myself, I can tell you that in general you will have a hard time finding growth plays in Japan any moreso than Canadian or US stocks, there isnt much growth. The only big growth plays in Japan I would say are diagnostic companies, some robotics, gaming stocks especially mobile, and this is limited. Japan as an index represents a big value play rather than growth. I suggest you look elsewhere. You are much better looking for growth among new companies at home.

Can you name companies you are targeting with high future growth in Japanese companies?
Support your local Credit Union!

Sask Pension Plan Upto $6600/yr in Credit Card spending on RRSP contributions
http://forums.redflagdeals.com/sask-pen ... ns-2167222
Deal Addict
Jul 23, 2007
4334 posts
2729 upvotes
Even if you could easily purchase Japanese equities you may be in the wrong asset class. I don't know what the next twenty years will bring, but over the last two decades Japanese bonds easily outperformed equities.

In real terms from Credit Suisse Global Investment Returns Yearbook 2020.

Bonds 3.7% per year.

Equities 1.5% per year.

I used to think it was great seeing John Templeton make a ton of money in Japanese equities but that all seems a long time ago now.
Deal Addict
Dec 4, 2011
1529 posts
987 upvotes
Montreal
Stryker wrote: Even if you could easily purchase Japanese equities you may be in the wrong asset class. I don't know what the next twenty years will bring, but over the last two decades Japanese bonds easily outperformed equities.

In real terms from Credit Suisse Global Investment Returns Yearbook 2020.

Bonds 3.7% per year.

Equities 1.5% per year.

I used to think it was great seeing John Templeton make a ton of money in Japanese equities but that all seems a long time ago now.
Didn't Buffett/Berkshire plow a whole lot of money in Japanese traders last summer?
Deal Addict
Jul 23, 2007
4334 posts
2729 upvotes
admiralackbar wrote: Didn't Buffett/Berkshire plow a whole lot of money in Japanese traders last summer?
https://www.cnbc.com/2020/08/30/warren- ... omo%20Corp.

Yes he did. The five trading house Buffett purchased through Tokyo are available on the OTC market in the U.S. I bought a few foreign ADR's on the OTC back in the 90's but I didn't find it much fun. Since there was hardly any volume ended up selling to a market maker in the late 90's at his price. Have avoided ever since.

Now it's basically whatever Japan's allocation to EAFE and I just leave it at that.
Deal Addict
User avatar
May 11, 2014
4469 posts
5245 upvotes
Iqaluit, NU
Stryker wrote: Even if you could easily purchase Japanese equities you may be in the wrong asset class. I don't know what the next twenty years will bring, but over the last two decades Japanese bonds easily outperformed equities.

In real terms from Credit Suisse Global Investment Returns Yearbook 2020.

Bonds 3.7% per year.

Equities 1.5% per year.

I used to think it was great seeing John Templeton make a ton of money in Japanese equities but that all seems a long time ago now.
Japan does represent a huge value play and there is some opportunity as a lot of the names are just neglected just because it is Japanese. But there are huge challenges and from a broad equity/index perspective, I'm not as confident.

If OP is going to select individual equities, it's another story, but I'm curious of which ones. Most welltraded ADRs are large, older companies. Any growth company won't have one or is unsponsored and wont trade well.
Support your local Credit Union!

Sask Pension Plan Upto $6600/yr in Credit Card spending on RRSP contributions
http://forums.redflagdeals.com/sask-pen ... ns-2167222
Deal Addict
Jul 23, 2007
4334 posts
2729 upvotes
xgbsSS wrote: Japan does represent a huge value play and there is some opportunity as a lot of the names are just neglected just because it is Japanese. But there are huge challenges and from a broad equity/index perspective, I'm not as confident.

If OP is going to select individual equities, it's another story, but I'm curious of which ones. Most welltraded ADRs are large, older companies. Any growth company won't have one or is unsponsored and wont trade well.
I agree with what you say, and I'm certainly not trying to put the OP off from investing in individual Japanese equities since that's obviously what they want to do. Only pointing out that it's not quite as easy as just picking a few equities. I'd be interested to hear how they get on with this. I learn something new every day.
[OP]
Deal Addict
User avatar
Oct 15, 2003
1174 posts
15 upvotes
Vancouver
xgbsSS wrote: Not exactly sure what you are targeting with Japanese stocks and growth. Growth isn't generally done through picking a country unless it's emerging and then you would buy the index. Being Japanese myself, I can tell you that in general you will have a hard time finding growth plays in Japan any moreso than Canadian or US stocks, there isnt much growth. The only big growth plays in Japan I would say are diagnostic companies, some robotics, gaming stocks especially mobile, and this is limited. Japan as an index represents a big value play rather than growth. I suggest you look elsewhere. You are much better looking for growth among new companies at home.

Can you name companies you are targeting with high future growth in Japanese companies?
I was thinking of some pharmaceuticals such as Takeda, but they will all be long plays, then again the American and Canadian markets should have their own companies as well. I should do more research :)
[OP]
Deal Addict
User avatar
Oct 15, 2003
1174 posts
15 upvotes
Vancouver
xgbsSS wrote: Takeda is a value play. I haven't followed them recently. I'd just use the ADR IMO
Does ADR just mean the listing on the NYSE? Sorry, I am a total noob. :)
Deal Addict
User avatar
Dec 8, 2010
2459 posts
879 upvotes
Leshita wrote: Does ADR just mean the listing on the NYSE? Sorry, I am a total noob. :)
https://www.investopedia.com/terms/a/adr.asp

Doesn't have to be NYSE; it is just a repackaging that happens through a bank to enable Americans (and anyone able to trade on the US exchanges) to buy stuff they might otherwise not have access to, or that would cost a large amount to transact in.

There are all sorts of ADRs, both 'sponsored' by the company in question and not, from lots of countries (UK, Russia, Japan, etc, etc).
Deal Addict
User avatar
May 11, 2014
4469 posts
5245 upvotes
Iqaluit, NU
Leshita wrote:
Does ADR just mean the listing on the NYSE? Sorry, I am a total noob. :)
@daverobev is correct (although Russian ones are no longer available due to sanctions).

It will depend on the specific company stock .

To give further explanation, a sponsored one is generally one where the company forms an agreement with a custodian/depository bank and sometimes, ensures shares meet listing requirements (ie, pays money to facilitate this).

in the case of Takeda, it lists on NYSE as TAK.
https://ca.finance.yahoo.com/quote/TAK?p=TAK
https://adr.com/drprofile/874060205

On the ADR website, you can see it partners with Bank of New York. Bank of New York buys Takeda stock on the Tokyo Stock Exchange to back up the ADR. Each ADR is worth 0.5 shares of actual Takeda stock.
https://ca.finance.yahoo.com/quote/4502 ... c=fin-srch

And if you click on fees, you will see no details. Being a sponsored ADR, Takeda is likely covering the fees.


Ok since we are talking pharmaceutical stocks, let's contrast this with an example of an unsponsored ADR. Astellas is another large Japanese pharmaceutical company.

you may notice this...
https://adr.com/drprofile/04623U102

Symbol ALPMY. Now a 5 letter ticker means it lists on the OverTheCounter board: this is for stocks or securities that cannot meet listing requirements. As a general rule, there is a slight risk that these don't trade well, and generally they are unsponsored (think about it, if the company doesn't pay for it, would the custodian bank bother to get the listing requirements?)

So you will see Sumitomo Mitsui Bank of Japan runs the ADR. To back up the ADR, Sumitomo deposits the shares with JP Morgan, Citi, Bank of NewYork, DeutschBank. But here is the thing, since it's unsponsored, you pay the fees. Click on fees, and you will see Sumitomo charges a bit on each dividend you receive (probably a percentage). So this is a way for investment firms to make money by offering easy ti access shares for individual investors through ADRs. A sponsored one by the company allows a company to access capital in different markets.

some caution:
-there can be more than on ADR per company. This can be either listing for different classes of shares or competing custodian banks offering ADRs on the same company (rare)
-Many dont trade well
-Adr.com doesn't list all of them so finding information can be very difficult
-companies remove sponsorship. some examples include Panasonic (PC ->PCRFY), Hitachi(HIT->HTHIY) and Volkswagen. generally these are announced, but you need to keep an eye because you could lose sight of this. in the case of Volkswagen, it went from VLKAY sponsored to VWAGY unsponsored or actual German shares. If you didnt elect, you may have gotten stuck with German shares you would now pay a ton of fees to sell
-Some are cancelled due to politics. All Russian ones are suspended due to sanctions
Support your local Credit Union!

Sask Pension Plan Upto $6600/yr in Credit Card spending on RRSP contributions
http://forums.redflagdeals.com/sask-pen ... ns-2167222
[OP]
Deal Addict
User avatar
Oct 15, 2003
1174 posts
15 upvotes
Vancouver
Thanks for all the info guys. Understood, I guess Canadians cannot buy Russian stocks at the moment?
It seems it may still be a good idea to buy directly from the native country's exchange then if that country has a designated exchange with Canada.
Deal Addict
User avatar
May 11, 2014
4469 posts
5245 upvotes
Iqaluit, NU
Leshita wrote: Thanks for all the info guys. Understood, I guess Canadians cannot buy Russian stocks at the moment?
It seems it may still be a good idea to buy directly from the native country's exchange then if that country has a designated exchange with Canada.
No. You didnt read that correctly. US placed sanctions on Russia, so Russian ADRs are discontinued. This doesn't stop you from buying Russian stock.

How are you getting that it is more beneficial to buy on the actual exchange? Considering the cost, effort and lack of support on brokerages, it's the opposite. ADRs are likely the best way. You do you though.
Support your local Credit Union!

Sask Pension Plan Upto $6600/yr in Credit Card spending on RRSP contributions
http://forums.redflagdeals.com/sask-pen ... ns-2167222
[OP]
Deal Addict
User avatar
Oct 15, 2003
1174 posts
15 upvotes
Vancouver
xgbsSS wrote: No. You didnt read that correctly. US placed sanctions on Russia, so Russian ADRs are discontinued. This doesn't stop you from buying Russian stock.

How are you getting that it is more beneficial to buy on the actual exchange? Considering the cost, effort and lack of support on brokerages, it's the opposite. ADRs are likely the best way. You do you though.
Thanks

Top