International-Financial-Management-(13)

InternationalEquityMarketsChapterThirteenCopyright©2014bytheMcGraw-HillCompanies,Inc.Allrightsreserved.ChapterOutline•AStatisticalPerspective–MarketCapitalizationofDevelopedCountries–MarketCapitalizationofDevelopingCountries–MeasuresofLiquidity–MeasuresofMarketConcentration•MarketStructure,TradingPractices,andCosts•TradinginInternationalEquities–MagnitudeofInternationalEquityTrading–Cross-ListingofShares–YankeeStockOfferings–TheEuropeanStockMarket–AmericanDepositoryReceipts–EmpiricalFindingsonCross-ListingandADRs13-2Copyright©2014bytheMcGraw-HillCompanies,Inc.Allrightsreserved.ChapterOutlineContinued•InternationalEquityMarketBenchmarks•iSharesMSCI•FactorsAffectingInternationalEquityReturns–MacroeconomicFactors–ExchangeRates–IndustrialStructure13-3Copyright©2014bytheMcGraw-HillCompanies,Inc.Allrightsreserved.AStatisticalPerspective•Marketcapitalizationofdevelopedcountries•Marketcapitalizationofdevelopingcountries•Measuresofliquidity•Measuresofmarketconcentration13-4Copyright©2014bytheMcGraw-HillCompanies,Inc.Allrightsreserved.MarketCapitalizationofDevelopedCountries•Atyear-end2012,totalmarketcapitalizationoftheworld’sequitymarketsstoodat$53,164billion.•Ofthisamount,75percentisaccountedforbymarketcapitalizationofmajorequitymarketsfrom31developedcountries.13-5Copyright©2014bytheMcGraw-HillCompanies,Inc.Allrightsreserved.MarketCapitalizationofDevelopingCountries•Theother25percentisaccountedforbymarketcapitalizationofdevelopingcountriesinemergingmarkets:–LatinAmerica–Asia–EasternEurope–Mideast/Africa13-6Copyright©2014bytheMcGraw-HillCompanies,Inc.Allrightsreserved.EmergingMarkets•Standard&Poor’sEmergingMarketsDatabaseclassifiesastockmarketas“emerging”ifitmeetsatleastoneoftwogeneralcriteria:–Itislocatedinalow-ormiddle-incomeeconomyasdefinedbytheWorldBank.–ItsinvestablemarketcapitalizationislowrelativetoitsmostrecentGNIfigures.13-7Copyright©2014bytheMcGraw-HillCompanies,Inc.Allrightsreserved.MeasuresofLiquidity•Theequitymarketsofthedevelopedworldtendtobemuchmoreliquidthanemergingmarkets.–Liquidityreferstohowquicklyanassetcanbesoldwithoutamajorpriceconcession.•So,whileinvestmentsinemergingmarketsmaybeprofitable,theinvestor’sfocusshouldbeonthelongterm.13-8Copyright©2014bytheMcGraw-HillCompanies,Inc.Allrightsreserved.MeasuresofLiquidity•Onemeasureofliquidityforastockmarketistheturnoverratio:Thehighertheratio,themoreliquidthemarket.In2012,theturnoverratiovariedfromalowof2(forBahrain)toahighof164(forChina).Forthemajorityofemergingmarkets,thereispoorliquidity.13-9Copyright©2014bytheMcGraw-HillCompanies,Inc.Allrightsreserved.MeasuresofMarketConcentration•Emergingmarketstendtobemuchmoreconcentratedthanourmarkets.–Concentratedinrelativelyfewcompanies.•Thatis,afewissuesaccountforamuchlargerpercentageoftheoverallmarketcapitalizationinemergingmarketsthanintheequitymarketsofthedevelopedworld.•Thenumberofequityinvestmentopportunitiesinemergingstockmarketsindevelopingcountrieshasnotbeenimprovinginrecentyears.13-10Copyright©2014bytheMcGraw-HillCompanies,Inc.Allrightsreserved.MarketStructure,TradingPractices,andCosts•Primarymarkets–Sharesofferedforsaledirectlyfromtheissuingcompany.•Secondarymarkets–Providemarketparticipantswithmarketabilityandsharevaluation.13-11Copyright©2014bytheMcGraw-HillCompanies,Inc.Allrightsreserved.MarketStructure,TradingPractices,andCosts•Marketorder–Anordertoyourbrokertobuyorsellshareimmediatelyatthemarketprice.•Limitorder–Anordertoyourbrokertobuyorsellatapriceyouwant,whenandifhecan.•Ifimmediateexecutionismoreimportantthantheprice,useamarketorder.13-12Copyright©2014bytheMcGraw-HillCompanies,Inc.Allrightsreserved.MarketStructure,TradingPractices,andCosts•Dealermarket–Thestockissoldbydealers,whostandreadytobuyandsellthesecurityfortheirownaccount.–IntheU.S.,theOTCmarketisadealermarket.•Auctionmarket–Organizedexchangeshavespecialistswhomatchbuyandsellorders.Buyandsellordersmaygetmatchedwithoutthespecialistbuyingandsellingasadealer.•Automatedexchanges–Computersmatchbuyandsellorders.13-13Copyright©2014bytheMcGraw-HillCompanies,Inc.Allrightsreserved.MarketConsolidationsAndMergers•Thereareapproximately80majornationalstockmarkets.–WesternandEasternEuropeoncehadmorethan20nationalstockexchangeswhereatleast15differentlanguageswerespoken.–ItappearsthatovertimeaEuropeanstockexchangewilleventuallydevelop.However,alackofcommonsecuritiesregulations,evenamongthecountriesoftheEuropeanUnion,ishinderingthisdevelopment.•Today,stockmarketsaroundtheworldareunderpressurefromclientstocombineorbuystakesinoneanothertotradesharesofcompaniesanywhere,atafasterpace.13-14Copyright©2014bytheMcGraw-HillCompanies,Inc.Allrightsreserved.TradinginInternationalEquities•Magnitudeofinternationalequitytrading•Cross-listingofshares•Yankeestockofferings•TheEuropeanstockmarket•AmericanDepositoryReceipts(ADRs)13-15Copyright©2014bytheMcGraw-HillCompanies,Inc.Allrightsreserved.MagnitudeofInternationalEquityTrading•Duringthe1980sworldcapitalmarketsbeganatrendtowardgreaterglobalintegration.•Thistrendwascausedbydiversification,reducedregulation,improve