Are Offshore Markets better than Onshore Ones? Chasing Liquidity. 

Investing in financial markets remains to be a lucrative venture to investors who understand their craft or have appointed performing and diligent fund managers. While investing continues to grow in popularity, questions on where to invest keep emerging. Investors want to know which option would be ideal between offshore and onshore investing. Investors ideally look for profitability and safety of their capital. The two have a high probability of being guaranteed in good markets. What really defines good markets? Liquidity is a crucial element of a good market, which offers suitable investing conditions for an investor.

Liquidity is in simple terms the willingness to spend less or more in a market. A liquid market allows buyers to spend more, and sellers to earn more. The opposite is true for illiquid markets. Liquidity greatly relies on market fundamentals. According to legendary hedge fund manager Stanley Druckenmiller, “earnings do not move the market but the Fed does”. For avoidance of doubt, the Federal Reserve or Central Banks give interest rates that determine the ability of buyer and sellers to transact.

Central Banks can raise interest rates in times of inflation through programs such as quantitative tightening. They can also lower interest rates to stimulate the economy in programs such as quantitative easing. These decisions affect the value of currencies and determine the amount of items or services would get for a certain amount. Cash tends to depreciate in value over the years because inflation keeps rising over the years however much it is mitigated.

Credit is also affected by the interest rates. Credit is more elastic compared to cash hence the reason behind increased spending when interest rates are dropped. When there is liquidity and credit, demand for items and services grows pushing the stock market higher.

As an investor, between your country and preferred offshore country, which of the two favors your profitability and safety of capital in the context of liquidity? You would want a country that has efficient policies and systems that effectively show in the market. You would also want markets that allow their participants great abilities to buy or sell.

Besides looking for liquidity, an investor should consider the items outlined below when determining whether to invest onshore (locally) or offshore. The items are the ability to diversify, Tax Laws such as Inheritance Tax, Tax Incentives for investors, market risks such as political stability and currency devaluation, and confidentiality. Conclusively, an investor should opt for markets that favor them as far as the aforementioned items are concerned blended with a significant concentration of liquidity. Liquid markets allow financial instruments to move more compared to illiquid ones hence offering investors a greater potential for gains.

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