Investors learning the ropes overseas. Sorting out foreign regulations, customs often worth the effort
Investors know that money moves to the countries where it can get the highest returns. The last few years have shown just how intertwined are the world's equity markets, but also the obstacles that have to be hurdled before a truly international market exists. The global bull market of the last five years has seen the market capitalization of the world's stock exchanges grow to more than $8 trillion, up 168 percent, according to the Securities Industry Association, a trade group.Skip to next paragraph
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Furthermore, the dollar value of equities traded around the world has grown 310 percent, to almost $3.5 trillion, and the Eurobond market has reached $3 trillion a year, the association noted.
Technology, stable economies, market deregulation, the opening of the United States to foreign securities firms, and liberalized regulations have contributed to this international equity growth.
``You can sit in Bern and buy in Paris,'' said Robert D. Hormats, vice-chairman of Goldman Sachs International Corporation, at a conference sponsored by the securities association last week. ``An investor can look around the world to see where he can get better yields and price-earnings ratios.''
European investors have been investing overseas for decades. Only in the last decade have US traders begun doing so. Mr. Hormats said large sums of American money have been invested in the Dutch, Spanish, and Canadian markets, reflecting a search for value and a ``recognition that the US equity market is not the only equity market in the world.'' Japan is the world's second-largest securities market.
Buying overseas gives a portfolio diversity. ``We're seeing substantial recognition to look internationally for hedging and diversification,'' Hormats noted. ``Foreign investors will continue to be interested in the US ... and it's going to be hard for companies not to look to the international markets.'' He expects that within the next 10 years, assets in US pension funds will reach $2 trillion. Today, American institutions have invested $50 billion abroad.
Foreign exchanges also have offered terrific returns. Nine foreign stock exchanges have outperformed the US markets so far this year. Or, as Lilia C. Clemente, chairman of Clemente Capital Inc., says, ``If you're not investing globally, you're missing 65 percent of the market.'' She says the rewards of investing in emerging countries - such as Brazil, India, Taiwan, Korea, Spain, and Mexico - have outweighed the risks. An international fund is always subject to the country's political and economic conditions, and therefore Mrs. Clemente advises investors to always watch the currency.
The move to global markets and 24-hour-a-day trading is moving ahead, although with some glitches. Terms and rules in one country do not always mean the same thing in another. ``US expertise doesn't necessarily mean worldwide expertise,'' observed Joel Press, a partner at Oppenheim, Appel, Dixon & Co. He noted, for example, that many countries do not have provisions for swap trades, or the exchanging of one security for another. ``Firms are expanding activity into new markets.... You need the proper people trading your portfolio,'' Mr. Press said.