Practice investment management pim3 ch15
Bạn đang xem bản rút gọn của tài liệu. Xem và tải ngay bản đầy đủ của tài liệu tại đây (440.28 KB, 20 trang )
CHAPTER FIFTEEN
INVESTING INTERNATIONALLY
Practical Investment Management
Robert A. Strong
Outline
Motivation for International Investing
Diversification
Market Efficiency
Growth
Methods of Investing
American Depository Receipts
Country Funds
Individual Securities
Unit Investment Trusts
International Mutual Funds
South-Western / Thomson Learning © 2004
15 - 2
Outline
Emerging Markets
Characteristics
Rationale
Investment Considerations
Special Risks
Country Risk
Trading Costs
Market Pressure
Lack of Financial Information
South-Western / Thomson Learning © 2004
15 - 3
Introduction
Insert Figure 15-1 here.
South-Western / Thomson Learning © 2004
15 - 4
Motivation for International Investing
Diversification: Portfolio risk reduction was
the original motivation for international
investing. Now however, evidence indicates
that this alleged advantage may be
overstated.
South-Western / Thomson Learning © 2004
15 - 5
Motivation for International Investing
Market efficiency: Free lunches may exist in
underdeveloped markets.
Growth: Many markets are less efficient than
those in the United States.
South-Western / Thomson Learning © 2004
15 - 6
Methods of Investing: ADRs
An American depository receipt (ADR) is a
marketable receipt showing ownership of a
foreign security.
Large commercial banks issue ADRs as a
convenience to would-be investors in foreign
securities.
A sponsored ADR is issued in coordination
with the underlying company.
South-Western / Thomson Learning © 2004
15 - 7
Methods of Investing: GDRs
Global depository receipts (GDRs) are issued
in the Euromarket and are backed by the
Euromarket depositories rather than by a
specific bank.
In practice, the terms ADR, GDR, and DR are
interchangeable. They all improve a firm’s
access to U.S. investment capital.
South-Western / Thomson Learning © 2004
15 - 8
Methods of Investing
A country fund is a closed-end investment
company whose portfolio is comprised
almost entirely of securities issued within a
particular foreign country.
The fund may contain some short-term
domestic securities for holding temporary
funds awaiting reinvestment.
Closed-end fund shares typically sell at a
discount from their apparent “true” value.
South-Western / Thomson Learning © 2004
15 - 9
Methods of Investing
Individual securities: Individual and
institutional investors may also purchase
shares directly on a foreign exchange,
especially if the exchange is well-developed.
A unit investment trust is a professionally
selected, but unmanaged, portfolio of
securities designed to meet some stated
investment objective.
South-Western / Thomson Learning © 2004
15 - 10
Methods of Investing
International mutual funds are portfolios of
securities too. They provide immediate
diversification, professional management,
and ease of entry and exit from the market.
An important consideration in selecting a
mutual fund is the fee charged by the fund
manager.
South-Western / Thomson Learning © 2004
15 - 11
Emerging Markets: Characteristics
An emerging market is characterized by a low
per capita gross national product.
History: Today’s developed markets were
once emerging markets too.
Culture: Significant differences exist among
emerging markets, but as a group, they
share one primary similarity - change.
The stock market of an emerging country can
be particularly volatile, especially by U.S.
standards.
South-Western / Thomson Learning © 2004
15 - 12
Emerging Markets: Characteristics
Insert Figure 15-2 (Emerging Market Volatility) here.
South-Western / Thomson Learning © 2004
15 - 13
Emerging Markets: Rationale
Adding value: Inefficiencies in developing
markets provide opportunities for money to
be made.
Reducing risk: While correlations among the
developed markets are increasing, emerging
markets show little correlation with
developed markets or with one another.
Getting on the bandwagon: Current industry
practice is another reason for the popularity
of international investing.
South-Western / Thomson Learning © 2004
15 - 14
Emerging Markets: Investment Considerations
Accounting information: Reliable accounting
information is especially scarce in emerging
markets.
Foreign currency risk: Hedging foreign
exchange risk is complicated in emerging
markets due to the less availability of
hedging vehicles.
South-Western / Thomson Learning © 2004
15 - 15
Emerging Markets: Investment Considerations
Fraud: Emerging markets carry a genuine
risk of fraud, ranging from accounting
misstatements to counterfeit securities or
bucket shops.
Liquidity risk: Residents of a developing
country typically have little money of their
own to invest.
South-Western / Thomson Learning © 2004
15 - 16
Special Risks: Country Risk
Country risk refers to a country’s ability and
willingness to meet its foreign exchange
obligations.
The two components to country risk are
political risk and economic risk.
Political risk is a measure of a country’s
willingness to honor its foreign obligations.
Economic risk is a measure of the country’s
ability to pay. It is largely a function of the
income statement rather than of the
balance sheet.
South-Western / Thomson Learning © 2004
15 - 17
Special Risks
Foreign market investing is likely to involve
trading costs at least one percent higher
than investing domestically.
Market pressure can be an important trading
cost in international markets, especially with
small-capitalization stocks.
Lack of financial information: Some particular
problems with financial information sources
are inherent in emerging markets. Often,
accounting standards differ too.
South-Western / Thomson Learning © 2004
15 - 18
Review
Motivation for International Investing
Diversification
Market Efficiency
Growth
Methods of Investing
American Depository Receipts
Country Funds
Individual Securities
Unit Investment Trusts
International Mutual Funds
South-Western / Thomson Learning © 2004
15 - 19
Review
Emerging Markets
Characteristics
Rationale
Investment Considerations
Special Risks
Country Risk
Trading Costs
Market Pressure
Lack of Financial Information
South-Western / Thomson Learning © 2004
15 - 20
