Module 3(a)-Equity Markets

7/31/2019 Module 3(a)-Equity Markets

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International Equity Markets

Sapna

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Syllabus

International Equity MarketsWorlds 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 mutualorganisation which provides trading facilitiesfor stock brokers and traders, to trade stock and

other securities. Stock exchange also provides facilities for the

issue and redemption of securities as well asother 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 regulationsfrom SEC-Securities & exchange commission)

- Stock exchanges in US are private & are characterized byavid competition

- Main rivals of NYSE are- American stock exchange,

NASDAQ( National Association of Securities DealersAutomated 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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U.K Market-

- Oldest yet most modern market

- London appeals to many investors as thisexchange has vey efficient market structure

for large issues & dispersed ownership

- This market mainly regulated by Departmentof Trade

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Japanese Market- these exchanges retain manyfeatures that have been abandoned by reforms inother countries

- Entry by new securities firm is strictly restricted

- Fixed commissions- Market is dominated by big 4 Japanese securities firms-

Nomura, 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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1980s saw a new phenomena in internationalinvesting

The emerging stock markets of newlyindustrialized countries like-Korea, Taiwan,

Mexico & Turkey etc The International finance Corporation which helps

countries to develop their stock markets hasestablished regulatory criteria for 20 markets

Till now only some countries like- Brazil, India,S.Korea, Chile have standards that are acceptedinternationally

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Emerging Stock Markets


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Name Market

Capitalization(US $

Millions)

Number of Listed

companies

Average daily value

traded for

quarter(US $

Million)

Argentina 3.438 174 3.16

Brazil 24,907 584 17.56

Chile 11,216 216 2.82

Colombia 1,335 80 0.25

Mexico 27,998 205 52.65

Venezuela 5,219 66 2.70

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Emerging Stock Markets- Latin

America


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Name Market

Capitalization(US $

Millions)

Number of Listed

companies

Average daily value

traded for

quarter(US $

Million)

Korea 93,886 669 233.53

Philippines 6,634 151 4.59

Taiwan, china 64,958 193 2,834.7

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Emerging Stock Markets- East Asia


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Emerging Stock Markets- South Asia

Name Market

Capitalization(US $

Millions)

Number of Listed

companies

Average daily value

traded for

quarter(US $

Million)

India 46,412 2471 86.36

Indonesia 7,109 116 17.97

Malaysia 38,143 266 49.56

Pakistan 2,832 473 1.03

Thailand 22,582 204 101.77

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Name Market

Capitalization(US $

Millions)

Number of Listed

companies

Average daily value

traded for

quarter(US $

Million)

Greece 16,475 129 18.08

Jordon 2,009 105 2.67

Nigeria 1,400 126 0.04

Portugal 8875 181 7.14

Turkey 26,342 100 21.74

Zimbabwe 1,853 56 0.19

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Emerging Stock Markets-

Europe/Mideast/Africa


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International Equity Trading

All the major stock exchanges are primarily Localmarkets, deriving great turn over from Intra countrytrading

Due to growth in markets & falling of barriers- Nationalmarkets are growing into Global stock markets

International Trading goes same way as domestictrading

For Internationalization of domestic stocks- MultipleListing is also used

E.g.- shares of Sony, Nestle etc are listed & traded inNY, Tokyo, London, Paris & several other exchanges

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Disadvantages of Multiple Listing

It is Costly- A Japanese firm who wants to getlisted in US, must also satisfy therequirements of SEC

- It includes recalculation of Published accountsaccording to GAAP

- Translate them in English

Multiple listings are sometimes Cosmetics-The bulk of trading in a particular stock islikely 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 acorporation, 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.

Issuing

Corporation

Investment

BankInvestors

Stocks Stocks

FundsFunds


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Private Placements

Stock is sold privately to a limited number of

large investors.


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Rule 144A

Private placements that can be traded.

Provides liquidity of privately placed bonds

and stocks.


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Obstacles to International Investment

Information Barriers- Language differences, differentaccounting standards etc acts as barriers

Political & capital control risks-

Foreign Exchange risks- currency fluctuations

Restriction on foreign investment & control- somecountries fear that foreign portfolio can distort domesticmarket & may cause inflation

Taxation- many countries impose special tax on dividends &interest paid to foreigners

Higher Costs- Cross border Investment faces additionalmanagement fees, communication charges etc

Data cannot be compared

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Benefits of International Investment

Harry Markowitz provided the mathematical basis formeasuring gains from diversification

Offers more opportunities than a purely domesticportfolio

Attractive investments overseas

The broader the diversification, the more stable thereturns and the more diffuse the risk.

Diversify across nations with different economic cyclesWhile there is systematic risk within a nation, outsidethe country it may be nonsystematic and diversifiable

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Tax Reduction - Many countries (known as TaxHeavens)offer tax incentives to foreign investors. Thefavourable tax rates in an offshore country are designed topromote a healthy investment environment that attractsoutside wealth

Confidentiality- Many offshore jurisdictions offer thecomplimentary benefit of secrecy legislation. Thesecountries have enacted laws establishing strict corporateand banking confidentiality. If this confidentiality isbreached, there are serious consequences for the offending

party

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Benefits of International Investment


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Questions??

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Module 3(a)-Equity Markets

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