Investing abroad, Finance, Banking, Money Markets, Loans, Mortgages, Finance FAQs

Section IV

For many years there was a good deal of prejudice in England against
investing abroad, especially among the more sleepy classes of investors
who had made their money in home trade, and liked to keep it there when
they invested it. As traders, we learnt a world-wide outlook many
centuries before we did so as investors. To send a ship with a cargo of
English goods to a far off country to be exchanged into its products was
a risk that our enterprising forefathers took readily. The ship took in
its return cargo and came home, bringing its sheaves with it in a
reasonable time, though the Antonios of the period sometimes had awkward
moments if their ships were delayed by bad weather, and they were liable
on a bond to Shylock. But it was quite another matter to lend money in a
distant country when communication was slow and difficult, and social
and political conditions had not gained the stability that is needed
before contracts can be entered into extending over many years.
International moneylending took place, of course, in the middle ages,
and everybody knows Motley's great description of the consternation that
shook Europe when Philip the Second repudiated his debts "to put an end
to such financiering and unhallowed practices with bills of
exchange."[3] But though there were moneylenders in those days who
obliged foreign potentates with loans, the business was in the hands of
expert professional specialists, and there was no medieval counterpart
of the country doctor whom we have imagined to be developing industry
all over the world by placing his savings in foreign countries. There
could be no investing public until there were large classes that had
accumulated wealth by saving, and until the discovery of the principle
of limited liability enabled adventurers to put their savings into
industry without running the risk of losing not only what they put in,
but all else that they possessed. By means of this system, the risk of a
shareholder in a company is limited to a definite amount, usually the
amount that has been paid up on his shares or stock, though in some
cases, such as bank and insurance shares, there is a further reserve
liability which is left for the protection of the companies' customers.

In the eighteenth century a great outburst of gambling in the East
Indian and South Sea companies, and a horde of less notorious concerns
was a short-lived episode which must have helped for a very long time to
strengthen the natural prejudice that investors feel in favour of
putting their money into enterprise at home; and it was still further
strengthened by the disastrous results of another great plague of bad
foreign securities that smote London just after the war that ended at
Waterloo. This prejudice survived up to within living memory, and I have
heard myself old-fashioned stockbrokers maintain that, after all, there
was no investment like Home Rails, because investors could always go and
look at their property, which could not run away. Gradually, however,
the habit of foreign investment grew, under the influence of the higher
rates of interest and profit offered by new countries, the greater
political stability that was developed in them, and political
apprehensions at home. In fact it grew so fast and so lustily that there
came a time, not many years ago, when investments at home were under a
cloud, and many clients, when asking their brokers where and how to
place their savings, stipulated that they must be put somewhere abroad.

This was at a time when Mr. Lloyd George's financial measures were
arousing resentment and fear among the investing classes, and when
preachers of the Tariff Reform creed were laying so much stress on our
"dying industries" that they were frightening those who trusted them
into the belief that the sun was setting on our industrial greatness.
The effect of this belief was to bring down the prices of home
securities, and to raise those of other countries, as investors changed
from the former into the latter.