Can I Invest in Foreign Stock Markets from Nepal?

Buying international stocks and investing in foreign stock markets from Nepal is appealing for a number of reasons.

First, Nepal’s stock market (NEPSE) is still in its baby phase. The total market capitalization obtained from all companies listed in the exchange is still very insignificant compared to international exchanges. One might want to invest in international exchanges to get more investment opportunities. Investing in international exchanges might also enable one to take advantage of progress in the global economy.

Second, the community in Nepal is evolving at a very fast pace. Compared to only a few years ago, we now have youths who have grown up watching award-winning finance movies and learning from the very best teachers on the internet. We have investors who understand quantitative analysis, high-frequency trading, and arbitrage. As such, the stock market at home is unable to accommodate the investment style and preference of investors. Nepal’s stock exchange does not support stock shorting and day trading, for instance.

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Is buying international stocks and investing in foreign stock exchanges really possible from Nepal?

Matters aren’t clear at home. Every Nepali is subject to an “Act Restricting Investment Abroad, 2021 (1964)”

According to this act, no Nepali can invest abroad except in cases where they receive a special exemption of the Nepal government or Nepal Rastra Bank.

It is clear that saying “I want to invest in foreign stock markets for a few extra bucks” won’t give you this so-called “special exemption” from the government.

The law states that violators will be fined an amount equal to the investment and/or jailed for up to six months. Except for medical, travel, and educational purposes, the Nepalese cannot transfer money out of their country.

This act is so old that King Mahendra Bir Bikram Shah Dev made this act with the consent of the national panchayat. Old man Mahendra died, and so did monarchy in Nepal, but this law is still in effect today.

Why this law

However, if we look from a neutral side, there are a number of positive aspects of this Act. Had it not been there, all the rich people would invest in foreign assets, leaving our home country barren. NEPSE is at its baby phase, and it certainly needs a little more love and care (even if it is a forced love) to grow.

Apparently, the government wants to keep the dollars from flowing out of the country. Also, most of the weak economies prevent their citizens from investing abroad. This is because they have a limited reserve of foreign currency which they need to finance huge imports. So, weak economies like Nepal do not allow their citizens to invest abroad.

Some think that this is a very anachronistic, ill-devised, and irrational law. They feel that Nepalese and any free human being should be free to make investments in any country that allows them to do so.

But rules are rules. And we have to obey them especially if they are embedded in our constitution.

But people have been breaking the rules

It is a known fact Nepalese citizens living in India have been investing in the Indian stock exchanges. Things are more confusing with our neighbouring country given that we two have contradicting laws.

It seems that India has opened its doors for a Nepali to invest in its stock market. In fact, India has given us preferential treatment in this matter because we are its neighbors.

India has said:

“If you are a citizen of Nepal or Bhutan, Indian markets are open for you to invest directly or through stock markets.”

According to India’s legal provision, citizens of Nepal and Bhutan can invest in Indian Securities on a repatriation basis.

Furthermore, Nepalese students studying in the US have investments in Bitcoin and the American stock exchanges themselves. I do not know if the US colleges allow this, since these students have student visas (F1) and off-campus employment is prohibited. Does investing count as a job? Haha.

Is Nepal’s Legal Body Watching?

Anyways, since I sensed that this violates the Act Restricting Investment Abroad, I wanted to verify things legally.

I called the Nepal Law Commission to inquire about the matter. Mr. Jung Bahadur Dangi, Under-Secretary and Information Officer, Nepal Law Commission received my call.

Apparently, he does not have any official or personal insight on the matter. He sounded as if he was oblivious to the fact that many were using this loophole and investing in India.

I also called Mr. Alok Chandra Shrestha, spokesperson of the Nepal Law Commission. As soon as I said I had called to know about this particular issue, he had an important meeting to attend.

# Update:

It was brought to my attention that the “Foreign Investment and Technology Transfer Act, 2019” has enabled Nepalese citizens to invest in foreign stock exchanges.

On further inquiry, lawyer Rakshya Singh clarified the matter. It turns out, the “Foreign Investment and Technology Transfer Act, 2019” is meant to encourage foreign investment in Nepal and not the other way around. This was her reply:

Hi Samin Ji, Thanks for putting your confusion forward. However, these two legislations are not contradictory to each other. There is a big NO! for a Nepalese citizen to invest in international stock exchanges as per the “Act Restricting Investment Abroad 2021. “. The Foreign Investment and Technology Transfer Act, 2019 (FITTA) Is all concerned about attracting foreign capital, technology, and investment in the sectors of import substitution and export promotion. The Act similar to “Act Restricting Investment Abroad 2021” doesn’t allow a Nepalese citizen to make a foreign investment rather it focuses on attracting foreign investment and technology to make the national economy competitive, strong, and employment-oriented to achieve sustainable economic growth.

Summing up,

a. “Act Restricting Investment Abroad 2021” restricts a Nepalese citizen from doing foreign investment.

b. While the FITTA, 2019 only attracts foreign investment and technology transfer to achieve sustainable economic growth. Henceforth, these two Acts don’t contrast each other. Hope the answer was beneficial to you. Regards,

Rakshya Singh

Wrapping Up

In my personal opinion, prohibiting investments abroad is a violation of the free market. The act is an outdated and conservative move to force citizens to invest in the country. Although this sounds okay for an ultra-nationalist, people should be let free to make their investment decisions. This is no different from India trying to prohibit Chinese products and China sanctioning American companies. In the bigger perspective, it does not make sense.