International Equity Markets

Sapna

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Syllabus
International Equity Markets Worlds Major Stock Markets Emerging Stock Markets International Equity Trading Diversification benefits of International Investment New Issue procedures Private Placements and Rule 144A fledging the currency Risk of International Portfolios.

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INTRODUCTION
A stock exchange is a corporation or mutual organisation which provides trading facilities for stock brokers and traders, to trade stock and other securities. Stock exchange also provides facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of incomes and dividends. A stock exchange is often the most important components of stock market.
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SECURITIES
Security is a fungible and negotiable instrument representing financial value The securities traded on stock exchange includes, shares issued by companies, bonds and also mutual funds.

THE ROLE OF STOCK EXCHANGES : Raising capital for business. Mobilizing savings for investment. Facilitating companies growth. Profit sharing. Creating investment opportunities for small investors. Government capital- raising for development projects. Barometer of the economy.
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LISTING REQUIREMENTS :
It is a set of conditions imposed by a given stock exchange upon companies that want to be listed. Such conditions sometimes includes minimum number of shares outstanding, minimum market capitalization, and minimum annual income. Requirements varies by stock exchange.
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Worlds Major Stock Markets

3 major stock markets of the world are U.S Market- Mainly dominated by NYSE - In leading position becoz of- depth & diversity of trading, Liquidity & also for degree of protection( by regulations from SEC-Securities & exchange commission) - Stock exchanges in US are private & are characterized by avid competition - Main rivals of NYSE are- American stock exchange, NASDAQ( National Association of Securities Dealers Automated quote system) & other regional exchanges - This market regulated by SEC
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What Is Offshore Investing?

Offshore investing refers to a wide range of investment strategies that capitalize on advantages offered outside of an investor's home country

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Worlds Major Stock Markets

U.K Market- Oldest yet most modern market - London appeals to many investors as this exchange has vey efficient market structure for large issues & dispersed ownership - This market mainly regulated by Department of Trade

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Worlds Major Stock Markets

Japanese Market- these exchanges retain many features that have been abandoned by reforms in other countries - Entry by new securities firm is strictly restricted - Fixed commissions - Market is dominated by big 4 Japanese securities firmsNomura, Daiwa, Nikko & Yamaichi - Cross holdings are prevalent especially between banks & industrial companies - Japanese market is shaken by series of scandals - This market is mainly regulated by Ministry of Finance
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Emerging Stock Markets

1980s saw a new phenomena in international investing The emerging stock markets of newly industrialized countries like-Korea, Taiwan, Mexico & Turkey etc The International finance Corporation which helps countries to develop their stock markets has established regulatory criteria for 20 markets Till now only some countries like- Brazil, India, S.Korea, Chile have standards that are accepted internationally
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Emerging Stock Markets- Latin America

Name Market Capitalization(US $ Millions) 3.438 Number of Listed companies Average daily value traded for quarter(US $ Million) 3.16

Argentina

174

Brazil
Chile Colombia Mexico Venezuela

24,907
11,216 1,335 27,998 5,219

584
216 80 205 66
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17.56
2.82 0.25 52.65 2.70

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Emerging Stock Markets- East Asia

Name Market Capitalization(US $ Millions) 93,886 6,634 64,958 Number of Listed companies Average daily value traded for quarter(US $ Million) 233.53 4.59 2,834.7

Korea Philippines Taiwan, china

669 151 193

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Emerging Stock Markets- South Asia

Name Market Capitalization(US $ Millions) 46,412 7,109 Number of Listed companies Average daily value traded for quarter(US $ Million) 86.36 17.97

India Indonesia

2471 116

Malaysia
Pakistan Thailand

38,143
2,832 22,582

266
473 204
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49.56
1.03 101.77
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Emerging Stock MarketsEurope/Mideast/Africa

Name Market Capitalization(US $ Millions) 16,475 2,009 1,400 8875 26,342 1,853 Number of Listed companies Average daily value traded for quarter(US $ Million) 18.08 2.67 0.04 7.14 21.74 0.19

Greece Jordon Nigeria Portugal Turkey Zimbabwe

129 105 126 181 100 56

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International Equity Trading

All the major stock exchanges are primarily Local markets, deriving great turn over from Intra country trading Due to growth in markets & falling of barriers- National markets are growing into Global stock markets International Trading goes same way as domestic trading For Internationalization of domestic stocks- Multiple Listing is also used E.g.- shares of Sony, Nestle etc are listed & traded in NY, Tokyo, London, Paris & several other exchanges
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Disadvantages of Multiple Listing

It is Costly- A Japanese firm who wants to get listed in US, must also satisfy the requirements of SEC - It includes recalculation of Published accounts according to GAAP - Translate them in English Multiple listings are sometimes CosmeticsThe bulk of trading in a particular stock is likely to be concentrated in 1-2 markets
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Euroequities
Shares that are in part issued outside their home country They are distributed worldwide through a multinational syndicate of banks

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New Issue Procedure

Before common stock can be issued by a corporation, shares must be authorized by a majority vote of both the board of directors and firms existing common stock holders. The investment bank has to conduct a primary market sale of stock using a firm commitment underwriting or a best efforts `underwriting basis. Stocks
Issuing Corporation Investment Bank

Stocks
Investors

Funds

Funds

Private Placements
Stock is sold privately to a limited number of large investors.

Rule 144A
Private placements that can be traded. Provides liquidity of privately placed bonds and stocks.

Obstacles to International Investment

Information Barriers- Language differences, different accounting standards etc acts as barriers Political & capital control risks Foreign Exchange risks- currency fluctuations Restriction on foreign investment & control- some countries fear that foreign portfolio can distort domestic market & may cause inflation Taxation- many countries impose special tax on dividends & interest paid to foreigners Higher Costs- Cross border Investment faces additional management fees, communication charges etc Data cannot be compared
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Benefits of International Investment

Harry Markowitz provided the mathematical basis for measuring gains from diversification Offers more opportunities than a purely domestic portfolio Attractive investments overseas The broader the diversification, the more stable the returns and the more diffuse the risk. Diversify across nations with different economic cycles While there is systematic risk within a nation, outside the country it may be nonsystematic and diversifiable
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Benefits of International Investment

Tax Reduction - Many countries (known as Tax Heavens)offer tax incentives to foreign investors. The favourable tax rates in an offshore country are designed to promote a healthy investment environment that attracts outside wealth Confidentiality - Many offshore jurisdictions offer the complimentary benefit of secrecy legislation. These countries have enacted laws establishing strict corporate and banking confidentiality. If this confidentiality is breached, there are serious consequences for the offending party

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Questions??

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