International investing isn’t new, of course. Europeans have been doing it for decades. American Depository Receipts (ADRs), which represent whole or partial shares of foreign companies have been listed and traded in New York since the 1920s. Weulthy Chinese Russians were forced into it.
“What is new is the escalated scale of the global equities business,” says Paul Melton, publisher of the Amsterdam-based Outside Analyst an international investing publication.
In 1961, only 150 ADRs were available to American investors. Today, over 600 ADRs exist for stocks of companies in 16 nations. That list includes the likes of the UK’s Imperial Chemical, Hanson PLC and Glaxo Holdings, Denmark’s Novo Industri, Japan’s Sony Corp, Canon Inc, and Hitachi Ltd, etc. In Europe, some international securities are part of every portfolio. Bearer shares are the favorite way to hold stock discreetly.
Overseas holdings by US portfolio managers exploded from around US $3 billion in 1980 to something over US $4 billion today. In 1980, US investors traded about US $17 billion worth of international shares. By 1992, the figure had zoomed to over six times that.
Why should anyone, American or otherwise, be interested in investing abroad? One, because domestic markets around the world steadily progress toward a giant global exchange, and two, you can make more money. Foreigners also jump into America’s markets. Ever more Americans pour cash into distant lands. Moreover, foreign markets offer additional opportunities to diversify for safety in well managed portfolios.
Stock markets generally, do not rise or fall together. Why be in the American market if it stagnates while share prices in far lands skyrocket? Wise investors ask themselves that question as they look overseas. They note the nations with promising markets. Then they invest at least some of their funds there.
Not long ago, Paul Melton of Outside Analyst provided interesting data about international investing in an article carried by Personal Finance.
He said: “During this decade, the average US stock, ignoring dividends, gained 177 per cent, while dollar returns in Singapore/Malaysia, Australia, Canada, Belgium, Holland, Hong Kong, France, Norway and the UK ranged from a low 10 per cent in Britain up to 299 per cent among these nine countries. As for the world’s three stock market leaders, Italy and Sweden each had dollar returns above 500 per cent in the decade. Meanwhile, Japan led the pack with a breathtaking dollar return of 1000 per cent.”
Do you need more evidence? In 1988, for instance, the Dow Jones Industrial Average, bell weather barometer for US investors, climbed 11.8 per cent. A Morgan Stanley Capital International index for world stock exchanges registered a 24.1 per cent increase in the same period when measured in local currencies, and a 21.2 per cent climb in US dollars.
Had you invested your money in the indices of any or all of 15 foreign countries at the start of 1988, you would have beaten The Dow by a wide margin. The Belgium market, for instance, soared by 67.2 per cent in franc terms, and by 48.5 per cent when measured in dollars.
The EAFA (Europe, Australia, Far East Index) showed a 32 per cent gain in local currencies and a 26.7 per cent jump in US dollar terms. Study such data and you must ask yourself how you can afford to ignore overseas markets. Of course in 1991 and 1992, with a rising dollar, it took exceptionally good judgement to make money in dollar terms, but diversification and international nimbleness is the name of the game today.
With adequate information, even small investors can go global, either through ADRs obtainable from a broker, through Yankee bonds bought at the same place or through mutual funds. Yankee bond issues are denominated in foreign currencies (yen, pounds sterling, Swiss franc or whatever), and registered with the SEE in the United States.
The ease of international investing may surprise you if you have overlooked this money¬making avenue. ADRs are listed on US exchanges. Some foreign companies list stocks directly on exchanges, the UK’s Hanson and Imperial Chemical are two examples. Or consider the Netherlands Royal Dutch Shell. Publications provide quotations of prices. Dividends arrive without trouble (though you may pay foreign taxes, which may be deducted as credits in US returns). You can unload shares of these giant public companies quickly.
Scores of funds offer opportunities for investing in international equities or bonds, or in a foreign currency. Funds sell directly through American offices or through brokers. Offshore banks, for fees of about 0.25 per cent a year, will be only too happy to take your money and invest as per your instructions. You can invest in currencies, commodities, metals, bonds, stocks or mutual funds.
The list includes Fidelity Global Bond, Merrill Lynch Pacific, The Templeton Income, the Putnam Global Government Income, the First Australia, the First Australia Prime Bond Fund and many more.
Single country or area funds proliferate. Among them are: the France, the Germany, the Korea, the Italy, the Scandinavia, the Taiwan and the Scudder New Asia Fund.
Remember though, that when you invest in a foreign land you become subject to the vagaries of the dollar. When the dollar’s value increase against the currency of the host country, your investments in the foreign land decline in dollar terms. Should your stocks also
TO    suffer decline at the same time, your investment gives you a double downside hit.
When the dollar slumps, the values of your foreign holdings climb. Sometimes the monetary situation operates in your favor, sometimes not. Should your stocks rise in value in the host country, you will enjoy a double profit. Dividends, if any, are a third bonus.
In 1987, with a weak dollar, international bond funds averaged a total return of 20.8 per cent. In 1988, as the dollar strengthened, yields fell to around 2 per cent. So if you ponder an investment abroad, first check the status of the dollar from your informational sources. Changes in currency valuation may be more important than the actual investment. Once in a foreign investment, you must follow the gyrations of the dollar, selling as soon as you sense a strong strength trend in the US currency. The general historical trend points to a declining pound and dollar, the Deutschmark and Swiss Franc are appreciating.
In addition to newsletters previously mentioned here, consider World Market Perspective, The International Advisor, Fuller Money and The International Harry Schultz Letter Dennis Hardaker, Advisor editor, says: “Our publication selects, analyses and recommends the most promising world stocks and monitors the world’s stock markets, offering readers the chance to profit from them.” The International Advisor is located at WMP Publishing Co, Suite 103, Lee Road, Winter Park, FL 32789, USA.
World Market Perspective is also published by WMP Publishing, at the same address. Its analysis aims more at the foreign economic situation than does its sister letter. Jerry Schomp, editor, says: “We only study global markets for specific and general economic trends, and analyses them so that our subscribers can use the information to make better investment decisions.”
General investing letters, such as Standard & Poor’s The Outlook, Doug Casey’s Invest ч in Crisis, The Wellington Letter or Personal Finance, periodically report worldwide investment opportunities.
The same article named three dozen foreign companies which they predicted would show average earnings of 30 per cent a year over the next five years.
Companies included: Western Mining and Alcoa in Australia; Algoma Steel, Ipsco Inc and LSI in Canada; Atlas Fertiliser in the Philippines; Hermes in Switzerland; Davy Corp, Caparo Industries and Renold in the United Kingdom; and Mannesman in West Germany. The results were mixed.
In the two years following the recommendation, Z-7 for instance was flat and made nothing in dollar terms. But in 1991 it picked up and made about two per cent per month. There are no sure things, but in general, foreign stock funds have given investors more upside action than most American funds.
The New York Times business section covers major foreign business and financial developments as well as American news. Meanwhile, its worldwide political coverage ranks among the best.
That is important.
International investors must pay close attention to world political events. When Iran wars with Iraq, or Iraq invades Kuwait, the world oil market shakes, with consequent reaction in petroleum shares. The development of a full Common Market in Europe from the end of 1992 was predicted to force drastic changes in operations of American multinational corporations and this may well still prove the case. That fact will affect their stock prices. South Africa’s racial problems could have affected its stocks, producing bargains for investors unconcerned about speculative risks and political considerations. When US sanctions were lifted in July 1991, most South African stocks doubled in one day. Bond discounts disappeared. Investors who were positioned to take advantage of the long-anticipated news made another killing!
The Wall Street Journal offers several daily pages of non-US financial news. In one analysis, the Journal’s ‘Abreast of the Market’ column said: “Ideally, investors look for a ‘triple whammy’ when moving cash abroad. In stocks, that means a dividend payment, rising stock prices and currency profits. In bonds, the potential triple advantage adds up to yield, capital gains and rising currency.” The Financial Times of London is sold all over Europe and Asia and gives the Wall Street Journal stiff competition.
Barron’s has its “International Trader” column plus a page on prices on overseas markets. Investor’s Daily reports pertinent data. The Economist, a London-based weekly magazine, has American and French editions which offer a wide variety of international articles. Virtually every business magazine periodically examines foreign markets. The Associated Press, working with Dow Jones, has developed a cadre of business-orientated reporters abroad. Its dispatches appear in newspapers around the world. Most major financial magazines have English versions.
Asset International Inc, 18 Desbrosses St, New York, NY 10013, USA, recently published The International Investor’s Guide. Its 450 pages contain a wealth of data, including investor’s contacts at more than 1000 foreign companies. The work isn’t cheap at US $245 a copy. It could be worth it for serious investors.
No US law prohibits citizens from maintaining a foreign bank account. Of course US investors must declare any interest income on tax returns.
Finally, as a result of numerous requests from Scope readers for more global investment advice, we commissioned The Wealth Report by Adam Starchild. The report concentrates, m only on preserving wealth effectively, but also on building it safely and securely. Adm Starchild’s recommendations are not investment tips but solid, conservative advice that, over time, will enable you to build a healthy nest-egg.