Foreign Stocks Attract US Buyers
EVEN as a backlash grows in the United States against overseas - especially, Japanese - ownership of American companies, US investors are buying historic amounts of foreign stocks.Skip to next paragraph
Subscribe Today to the Monitor
US net purchases of overseas equities rose to a record $25 billion in the first three quarters of 1991, according to the Securities Industry Association (SIA), a trade group. That amount is almost double the prior peak of overseas stock purchases by Americans, $13 billion recorded during the entire year of 1989.
US investors have made net purchases of foreign stocks for 13 consecutive months through September, 1991, the last month for which statistics are complete. American investors owned about $125 billion worth of overseas equities by September of last year, according to David Strongin, an official of the SIA.
Much of the interest in overseas stocks is linked to a return of smaller investors to the market, experts say. Declines in some overseas markets in past months also mean that many overseas stocks are currently trading at prices well below their highs.
Much of the better performance among overseas stock markets is taking place in smaller markets. Last year, for example, the two hottest-performing markets were Hong Kong, which rose 43 percent in US dollar terms, and Australia, which rose 29 percent. Wall Street, that is, the US stock market, was third, rising 27 percent. Markets such as Japan and Germany failed to place in the top 10 last year in returns, coming in 15th and 16th respectively, according to Thieme Associates Inc.
So far this year, smaller markets, especially in Asia, continue to post gains. Ten of the 20 markets covered by Morgan Stanley & Co. were up in January, 1992. Finland was first, although it was a market underperformer last year; Hong Kong was second; Austria third. Prominent markets such as Britain, Australia, the US, and Japan, all came in below the top 10 performing markets in January.
American investors, according to Mr. Strongin, are willing to accept some risk when investing abroad, providing that opportunities for earnings gains are good. Thus, Americans have been heavy buyers of Japanese equities, despite a 40 percent drop in that nation's stock market last year. Purchases of Japanese issues represented 45 percent of all foreign stocks acquired by Americans in 1991.
Britain was the country most favored next to Japan, followed by Mexico, Germany, the Netherlands, France, Italy, and Switzerland.
The interest in Mexican stocks is somewhat new, experts note, and is expected to accelerate if the US and Mexico conclude a proposed free-trade pact.
THERE are a number of ways to invest in overseas issues. The best known approach is to purchase ADRs, American depositary receipts. These are receipts for shares of overseas companies on deposit with US banks.
Investors can also buy overseas equities through a broker, invest in a global mutual fund, or buy into a specialized closed-end fund dealing with a particular country, such as the Italy Fund or the Korea Fund.
In an analysis written for the January issue of Better Investing, a magazine published by the National Association of Investors Corporation, NAIC president Kenneth Janke notes that there are many potential pitfalls for investors buying foreign stocks.
Currency fluctuations can affect earnings. Even if a stock posts earnings gains, the gains could be offset by a drop in the value of the foreign currency against the dollar. Reporting requirements are often less detailed than in the US, and they are not uniform worldwide.