The rise of a global 'shareholder culture'

All the tales of investors getting rich in the US have encouraged investors here and in other countries to put money into stocks.

Industrial nations have long had stock markets. And in many developing nations, stock markets exist.

But now, stock ownership is spreading from a relative few individuals to a broader percentage of the worldwide population.

The last investor survey by the New York Stock Exchange, for 1995, found 69.3 million Americans invested in stock directly, or indirectly through mutual funds and savings and pension plans. A Federal Reserve survey in 1998 suggested stock ownership could stretch to half of US households.

Abroad, Germany is adding about 500,000 new stock investors a year. With 5 million investors out of a total population of 81 million, the investor ratio in Germany is still far smaller than in the US.

But for savings-minded, financially conservative Germans, a thriving investor capitalism is an "extreme change," says Rudiger von Rosen, managing director of Deutsches Aktieninstitut, a German think tank promoting stock ownership.

Similar trends have occurred in many nations. Stock-market exuberance, and sometimes, "irrational exuberance," (as Fed Chairman Alan Greenspan puts it) is spreading around the globe.

In China, France, Germany, South Korea, and many other nations, a growing number of average citizens are buying stock.

The Chinese buy and sell equities in what they jokingly call the "stir-fry market." That's because relatively few of China's 55 million or so investors hold on to their shares for long. They flip them over after two to six months in the heated bull market and take their profits.

The market has become "a virtual casino," says Chen Zhao, managing editor of the BCA China Analyst in Montreal.

Five years ago, China probably had only a fifth as many investors as it does today. But with almost zero interest rates, many ordinary Chinese have leapt into the market with borrowed money. The ratio of prices to corporate earnings per share has reached 61 - nearly the level of some Internet stocks in the United States.

The government has taken no recent measures to discourage stock investment. It sees the capital raised through the stock market as more fruitfully invested than some capital borrowed from debt-laden commercial banks.

At a private meeting in Beijing last month, Chinese President Jiang Zemin was reported to have spoken favorably of the Chinese as "inherently risk-takers."

Mr. Chen expects the government at some point this year or next to move toward merging China's A market for domestic stock investors and its depressed B market for foreign investors. The move would pump up dramatically the value of B stocks.

In many other nations, the mass rush to invest is encouraged by reforms that make the markets more fair. Companies, for instance, are being required to provide more accurate information on their finances to their shareholders. Stock trading is better regulated to prevent corporate insiders or the brokerage industry from exploiting ordinary stock investors.

South Korea, for instance, is in the process of setting up an electronic-disclosure system for companies, similar to the "Edgar" system operated by the Securities & Exchange Commission in Washington. The nation's famed giant conglomerate chaebols must now publish more revealing consolidated financial statements.

South Korea had 2 million to 3 million investors in stocks 10 years ago and the stock market was closed to foreigners. Today there are 7 million to 8 million stock investors in a total population of 46 million, estimates Dr. Sang Lee, managing director for international business of the Korean Security Dealers Association.

Foreigners own 28.4 percent of total Korean stocks. Most television news shows note the latest market developments.

Something similar has happened in Germany. Most Germans in recent decades put spare money into savings accounts. One reason was that commercial banks controlled many companies through their ownership of huge blocks of stock. They had inside information; investors had less knowledge of significant company developments. Now German companies will have to publish quarterly earnings reports, not just annual reports.

Moreover, a new shareholder culture has meant that public-television stations bring stock-market news. Newspapers, even the popular tabloid Bild Zeitung, with its photos of naked women, cover market activity.

"No one used to talk about his investments with his neighbor," says Mr. von Rosen, a former CEO of the Frankfurt stock exchange. Now they do.

Last year, German firms, many in high-tech areas, issued 170 initial public offerings of stock. This year, he says, there could be 250 to 300 IPOs.

In France, the number of direct owners of stocks has been stagnant at around 5 million. But more and more people are buying stock indirectly through a vibrant mutual-fund industry.

Moreover, some 40 "online brokers" - companies that buy and sell stocks for customers on the Internet or another electronic network - have stirred up interest in stocks in France.

As many as 25 percent of the transactions on the Paris Bourse have been placed by these electronic brokers, reckons Marianne Demarchi, head of equity research at that stock market. Six months ago that percentage might have been only 12 percent.

"People are talking more and more about stocks," she says. The same could be said in many other nations.

(c) Copyright 2000. The Christian Science Publishing Society

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