Turbulence in world stock markets began last summer in the Far East and reverberated around the globe. It affected all emerging markets, including those in Latin America and Europe, as well as threatening larger, more mature economies. And it is not over yet.
Events in Japan, where the government has still to pull its economy into shape has led to a renewed bout of nervousness. A falling Japanese yen, fears of a devaluation of the Chinese currency, the yuan, and a possible trade war are surfacing.
Many investors may feel nervous about making investment overseas. A number of professional fund managers have thought for some time that the leading stock markets are overvalued, especially the USA, where share prices are still close to their all-time highs.
Yet the reasons for investing in an international portfolio remain as convincing as ever. The UK is the world's third largest stock market. But over recent years its performance has lagged behind that of the USA and other markets.
Even this year, which has seen the FTSE 100 index rise some 20 per cent, has only been a catching up process with the rise in share prices in America. Plus, the rise in the index has been dominated by a few financial, pharmaceutical and oil stocks.
While putting money into UK companies is normally the first equity investment for most savers, as time goes by they are usually advised to go international. This is because economies around the world are normally at different stages of the economic cycle, so prospects can be better elsewhere. Mainland European markets, getting ready for the introduction of the euro, have been among the best performers this year.
But investing overseas can be costly and time-consuming. Many markets are difficult to invest in. It is expensive to buy foreign shares and there is the added problem of taking currency risks. Even more important, it can be very difficult to get up to date information on foreign companies. Luckily, there are plenty of unit and investment trusts that specialise in international investments. They offer ready-made portfolios that can be bought into cheaply and which take all the hassle out of global investing.
One of the best means of investing internationally is by regular saving. By putting in a set amount each month, you will iron out the peaks and troughs seen in markets. It means that when prices fall, you will get more for your money. All the main fund management groups now offer special regular saving plans, some starting from as low as pounds 25 a month. As long as you invest for the long term, five or more years, you should do well. Over such a period, equity investment usually outstrips any other form of savings.
Going international can suit the cautious investor as well as those prepared to take high risks. General international funds, available from all the major groups, are the least risky. Most have up to half their investments in the USA, with the rest spread around the world. "In many respects, investing in a good, broad-based international fund can be less risky than investing in a UK unit trust," says Jeremy Smith, an independent financial adviser. "A pure UK investment could be seen as putting all your eggs in one basket. By going international, you can iron out the rises and falls in individual national stock markets."
Next in order of risk are the geographical funds, such as Europe and the USA, followed by the emerging market funds, which have suffered over the past year. The high risk are single country funds or those investing in just one sector of the market such as technology.
A decade ago, Japan was seen as the market to be in. Yet, during the 1990s, funds specialising in Japan have been lagging in performance. Now, after last summer's stock market downturns in the Far East, they have been joined by other country-specific funds in the region such as those specialising in China, South Korea and Thailand.
Recently, a new trend has begun to emerge in global investments. Some fund managers have begun to look at international trends, such as increasing demand for healthcare and leisure activities, the increasing need for modern telecommunications, and so on.
Sarasin and GT Global are two fund management groups that offer funds concentrating on these global mega-trends and so offer their investors the prospect of making gains from these markets.
The stock market shocks of the past year in emerging markets will have made investors more cautious about putting their money overseas. But over the long term, there is still money to be made by investing globally.
Tony LyonsReuse content