Take the indirect route if you want to invest in overseas markets

Now, where was I? Ah yes! How do you gain effective and profitable exposure to overseas markets? Well, as they say in all the best-regulated investment circles, how long is a piece of string?

Let us get one thing straight. Investment overseas is simple. Direct investment overseas is not. There are plenty of people who will tell you that the securities industry these days is a global business. They are quite right.

Professional money managers in Kansas, Edinburgh and Singapore may well take the view that you need to compare GEC with Siemens, Thompson CSF and General Electric, but they will be pouring vast resources into research among both companies and markets (UK, Germany, France and US in that order).

This is where life becomes complicated. It is not just investment managers who have become global. So have many UK businesses. It is not for nothing the FTSE 100 index is often referred to as proxy for international investment.

Nevertheless, the performance of these UK-based multi-nationals does not necessarily reflect what is happening in the overseas markets in which they operate. There is also no doubt that for many investors seeking overseas exposure, simply buying Siebe (British-based, but with a massive American business) or Hays (now the largest logistics company in Europe) is not enough. But when you start to invest directly in overseas markets complications can arise.

Settlement procedures may be different, while it is often necessary to hold stock through a recognised depository. Moreover, dividends arise in a currency which usually has to be converted into sterling if you are to benefit. The cost of this can eat up the cash value of the dividend.

A further problem is that many overseas markets do not operate in a private investor-friendly fashion. "Board lots" - the number of shares in which you are permitted to deal - may necessitate the purchase of a larger holding than you would otherwise wish in your portfolio.

Moreover, some foreign companies are priced so heavily that even a single share is a major financial commitment. An investment club I know conceived the idea of buying a certain Swiss drug company where even the sub-shares, representing one tenth of a full share, would have involved committing more money than was usually put into a single investment.

No wonder the bulk of investment overseas by private investors is through the medium of collective investments - unit trusts and investment trusts.

An investment trust is a limited company, the shares of which are quoted on the stock market. The price can fluctuate according to supply and demand and the shares may stand at a premium or a discount to asset value. Unit trusts, on the other hand, are open-ended, which means that units can be issued or cancelled according to circumstances. They are usually very liquid, enabling investors to buy or sell with ease. But they are a more expensive means of gaining stock market exposure, while few people realise that the price need not equate to the true asset value, as the formula within which these companies can price their units allows great flexibility.

At present, investment trusts look good value. Discounts have risen, so it is possible to acquire more underlying assets for your pound than would be the case if you were to take the unit trust route. But it is not always easy to sell an investment trust share.

Our own research is conducted from Edinburgh, home of the investment trust movement. Among favoured funds are Govett Oriental, for those who want a flavour of the East East, TR European Growth, for economic recovery on continental Europe, and Beta Global Emerging Markets, a fund which should bring all the excitement associated with the fastest-developing corners of the world. With discounts of 14 per cent, 1 per cent and 9 per cent respectively, all look a cheap way into these markets.

Brian Tora is chairman of the Greig Middleton investment strategy committee and can be contacted on 0171-655 4000