OVERSEAS INVESTMENT

Other risks

Other Risks of Overseas Investment It is also worth noting that there are other risks associated with overseas investment which may be significant depending on which country one is considering.

The risks to consider include -
· political upheaval - seizure of foreign owned assets etc
· economic collapse - rampant inflation etc
· currency controls being imposed - preventing repatriation of monies

So - are you prepared to take on the risk and the possible rewards of overseas investment? It is a tricky decision because in recent years currencies have become more volatile and some foreign countries have experienced enormous upheaval. Apart from a few specialist funds where the fund management company concerned has to take a view on specific currencies before taking investment decisions, the currency decision is left to the investor when selecting a suitable fund.

The risk may be very substantially reduced by the simple expedient of only investing in funds which invest into domestic companies. Even then you may have a modest currency exposure to the extent that the domestic companies into which your chosen fund invests may well export or import goods or services which will involve the receipt or payment of foreign currency, or they may hold foreign assets. As trading payments may often be deferred and holding foreign assets involves the purchase and holding of foreign currency, those companies will have a currency risk. However, this should not be very significant because sensibly managed companies will hedge (protect themselves) against this risk.

As ever, the risks implicit in overseas investment also represent opportunities and many investors prefer to have some exposure to other currencies, economies and markets.