Foreign Shares

THE sweeping rise in the value of the dollar earlier in the 1980s increased Americans' purchasing power for foreign goods. But bargain hunters may have overlooked one interesting if chancy buy: foreign stocks. These investments stand to do well if the dollar continues to drop against the currencies of Japan, Germany, Britain, Switzerland, the Netherlands and other countries. Even if the stock you pick doesn't rise but the dollar declines against the currency of that country, you will come out ahead when you sell. The reason: the foreign currency you collect from the sale will convert into more dollars than it cost you to buy the stock. And if the stock rises, you will get a double lift.

On the negative side, Americans who invest in foreign stocks run the risk that a foreign currency decline will cut into any stock gains. In the specific case of Japan, that country's currency has risen so fast against the dollar, and Japanese stocks have soared so high relative to corporate earnings, that many analysts would not be surprised to see a fall. Also, different accounting standards make it hard to evaluate foreign companies, and information is not as quickly available as it is for U.S. stocks. For those reasons, money managers believe you should probably limit your international investments to at most 10% or 15% of your stock holdings.

You can buy individual foreign stocks yourself. Most Canadian shares are traded in the U.S. just like American securities. So are the stocks of about 700 other foreign companies. They are sold in the form of American Depositary Receipts, or ADRs. Each ADR is issued by a U.S. bank and represents one to 10 shares of a foreign stock held abroad at a custodian bank. ADRs generally trade over the counter, though a few are listed on the New York Stock Exchange.

Experienced investors seeking a wider choice can buy and sell shares directly on foreign stock markets. Your U.S. broker should be able to handle the transactions. But don't expect him or her to offer expert advice on which foreign stocks look particularly attractive.

An easy way to get your feet wet is with American mutual funds specializing in foreign stocks. Among them, Merrill Lynch Pacific and G. T. Pacific concentrate on Far Eastern stocks. For stocks of companies in Europe and elsewhere, you might consider Alliance International, Scudder International, T. Rowe Price International and Vanguard World International.