Go global to smooth out the bumps

International Stock Markets: Despite the worldwide meltdown in share prices last month, investing money overseas can be
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The Independent Online
Recent weeks have shown just why share-based investments carry a warning that prices can go down as well as up.

The bout of share price volatility began in the Far East during the summer when the so-called tiger economies of Thailand, Indonesia and Malaysia came unstuck. Overvalued currencies and large budget deficits led to attacks by international speculators. After mutual recrimination between governments in the region and investors - George Soros in particular - the contagion spread to Hong Kong.

World stock markets were already nervous. Many analysts have thought for two years that markets were overvalued, the US in particular. Many investors also feared the 10th anniversary of Black Monday; the day in 1987 when world markets crashed. Since then the emergence of a global financial market has been enhanced by the speed of communications and growing trade. So the Hong Kong slump knocked on to other markets: Wall Street dropped nearly 550 points in a day.

Yet the reasons for investing in an international portfolio are as convincing as ever. The UK is the world's third-largest stock market, but in recent years its performance has lagged behind the US and others. Even this year, during which the FT-SE 100 index (measuring the performance of shares in our top 100 companies) rose nearly 30 per cent before last month's volatility, it was only catching up withAmerica.

While putting money into UK stocks is normally the first investment for most savers, they are usually advised then to go international. This is because global economies are usually at different stages of the economic cycle. Stock markets do not necessarily rise and fall together, so investing across a number should reduce risks. In high-growth economies, in theory at least, stock markets should ultimately yield higher returns.

But investing overseas can be costly and time-consuming. Many markets are difficult to invest in. It can be expensive to buy shares abroad and there may be currency risks. It can be hard for UK investors to get up- to-date information on companies.

Luckily, there are plenty of managed investment funds - mainly unit and investment trusts - specialising in international investments. They offer ready-made portfolios that can be bought into quite cheaply. Professional fund managers take all the hassle out of global investing.

One of the best means of investing, international or not, is regular saving. By investing a set amount each month you will iron out the peaks and troughs of markets. When prices fall, you will buy more units or shares for your money. All the main fund management groups offer special regular saving plans, some from as low as pounds 25 a month.

International funds vary from relatively low risk to very high risk. General funds are the least risk; most have up to half investments in the US, with the rest spread around the world. The highest risk are single- country funds or those investing in one sector, such as technology.

Recently, a new trend has started to emerge. Instead of looking at national economies, some fund managers have begun to look at international trends such as rising demand for better health care, the growth in leisure activities, the need for modern telecommunications, and so on. Sarasin and GT Global are two fund management groups now offering funds that hope to latch on to these global megatrends and so offer their investors the prospect of making a gain from these markets.

So by all means be more cautious - but don't forget that there is still money to be made by investing internationally.

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