Best of the Week
Most Popular
1.Canada Real Estate Bubble - Harry_Dent
2.UK House Prices ‘On Brink’ Of Massive 40% Collapse - GoldCore
3.Best Cash ISA for Soaring Inflation, Kent Reliance Illustrates the Great ISA Rip Off - Nadeem_Walayat
4.Understanding true money, Pound Sterling must make another historic low, Euro and Gold outlook! - Marc_Horn
5.5 Maps That Explain The Modern Middle East - GEORGE FRIEDMAN
6.Gold Back With A Vengeance As Bitcoin Bubble Bursts - OilPrice_Com
7.Gold Summer Doldrums - Zeal_LLC
8.Crude Oil Trade & Nasdaq QQQ Update - Plunger
9.Gold And Silver – Why No Rally? Lies, Lies, And More Lies - Michael_Noonan
10.UK Election 2017 Disaster, Fake BrExit Chaos, Forecasting Lessons for Next Time - Nadeem_Walayat
Last 7 days
Sugar Commodity Investors: "Desperately Seeking..." Clarity and Objectivity - 28th Jul 17
When You Think It Can’t Get Worse, The Markets Become Even More Absurd - 27th Jul 17
US Dollar - Make Way For Uncle Buck - 27th Jul 17
Stock Market Levitation Continues... For Now - 27th Jul 17
Is Big Oil planning its Funeral by ignoring the obvious? - 27th Jul 17
Why Surging UK Household Debt Will Cause The Next Crisis - 27th Jul 17
Reconciling the US Dollar Outlook with the Super Bullish Gold and Silver COTs - 26th Jul 17
Last Week’s Rally in Gold Stocks Erased - 26th Jul 17
Dollar, Bitcoin, Markets - Is There A New Flight To Safety? - 26th Jul 17
Central Banks ARE The Crisis - 26th Jul 17
Iran: Public Image Versus Historical Reality - Part 1: An Abridged History to the 20th Century - 26th Jul 17
Trump Fails To Understand One Critical Thing—Our Trade Partners Have Options, Too - 26th Jul 17
Stock Market and Gold Stocks Trend Forecast Update - 25th Jul 17
Saving Illinois: Getting More Bang for Its Bucks - 24th Jul 17
3 Stocks Sectors That Will Win in The Fed’s Great Balance-Sheet Unwind - 24th Jul 17
Activist Investors Are Taking Over Wall Street, Procter and Gamble Might Never Remain the Same - 24th Jul 17
Stock Market Still on Track - 24th Jul 17
Last Chance For US Dollar To Rally - 24th Jul 17
UK House Prices Momentum Crash Warns of 2017 Bear Market - Video - 22nd Jul 17
Crude Oil, Gold, ETFs & more: Pro-grade Market Forecasts - 22nd Jul 17
Warning: The Fed Is Preparing to Crash the Financial System Again - 21st Jul 17
Gold / Silver Shorts Extreme - 21st Jul 17
GBP/USD Bearish Factors - 21st Jul 17
Gold Hedges Against Currency Devaluation and Cost Of Fuel, Food, Beer and Housing - 21st Jul 17
Is It Worth Investing in Palladium? - 21st Jul 17
UK House Prices Momentum Crash Threatens Mini Bear Market 2017 - 21st Jul 17
The Fed May Show Trump No Love - 20th Jul 17
The 3 Best Asset Classes To Brace Your Portfolio For The Next Financial Crisis - 20th Jul 17
Gold Stocks and Bonds - Preparing for THE Bottom - 20th Jul 17
Millennials Can Punt On Bitcoin, Own Safe Haven Gold For Long Term - 20th Jul 17
Trump Has Found A Loophole To Rewrite Trade Agreements Without Anyone’s Permission - 20th Jul 17
Basic Materials and Commodities Analysis and Trend Forecasts - 20th Jul 17

Market Oracle FREE Newsletter

Crude Oil, Gold, ETFs & more: Pro-grade Market Forecasts

Investing in Emerging Markets with U.S. Traded ADRs

Companies / Emerging Markets May 07, 2012 - 12:09 PM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleLarry D. Spears writes: For most of the past decade, the name of the game in worldwide equities has been investing in emerging markets.

If you don't believe me, just take a look at the performance of the iShares MSCI Emerging Markets Index Fund (NYSEArca: EEM).


It is an exchange-traded fund (ETF) that tracks MSCI's Index of major stocks in 21 emerging countries. Since its inception in April 2003, EEM is up 264.6%, not including the dividend.

By contrast, the S&P 500 gained just 55.7% over the same period.

That's a substantial difference in performance - one well worth pursuing for almost any investor.

But what's the best way to invest in emerging markets?

You might think the answer is just to buy EEM or a similar fund, like Vanguard's MSCI Emerging Markets ETF (NYSEArca: VWO).

However, there are some drawbacks.

One is a lack of focus. For instance, with an index fund you get the weak companies along with the strong. Another is the inability to target very specific industry groups or individual companies you think have the most potential.

Fortunately, there's an alternative to both emerging-market funds and direct foreign trading, which can be a tricky proposition for ordinary investors. It's called an American Depositary Receipt, or ADR, and there's been an explosion of them in recent years.

Investing in Emerging Markets with ADRs
ADR's are negotiable securities created when the stock of a foreign company is placed on deposit with a U.S. bank or other depositary institution. They are used as security for the issuance of shares either listed on U.S. stock exchanges or approved for trading on the American over-the-counter (OTC) market.

The shares are denominated in U.S. dollars, pay dividends in U.S. dollars and generally trade just like the stocks of U.S. companies.

Foreign companies typically create ADRs to tap the U.S. markets for operating or expansion capital unavailable in their home countries. Sometimes, though, the move is designed merely to increase their international exposure or enhance their credibility in the global business community.

The first ADR was created in 1927 and, for many years, most were large European or Japanese companies that sold products in America and wanted to give U.S. traders easier access to their shares.

Two prime examples are Dutch consumer-products giant Unilever N.V. (NYSE: UN) and Swiss pharmaceutical firm Novartis AG (NYSE: NVS).

Over the past few years, however, the ADR arena has seen a huge number of new entries from emerging-market nations - particularly China.

According to the DR Directory of BNY Mellon, one of the largest ADR depositories, the NASDAQ has listed 25 new ADRs over the past three years -19 of which are from China.

Similarly, the New York Stock Exchange has listed 67 new ADRs over the past 36 months, with only 10 from Europe, one from Japan and the rest scattered around the developing world.

The listing action has been even more frantic on the U.S. OTC market. In the past year alone, there have been 255 new ADR listings, including:

•18 from Thailand, representing 13 different industry groups.
•5 from the Philippines in five different business sectors.
•5 from South Africa, including three in the mining industry.
•17 from Indonesia, representing 11 different industry groups.
What that means for investors is that using just ADRs they can now easily create their own mini-portfolios of emerging-market stocks, focusing on a specific region, country, industry or even a particular sector within one of the larger developing nations.

For instance, BNY Mellon lists:

•117 companies with ADRs in the oil and gas production business, including major European and Asian corporations as well as those in emerging-market countries.
•108 companies in mining, including firms in resource-rich nations like South Africa, Australia and Russia.
•57 companies in mobile telecommunications, a particularly lucrative and fast-growing sector in the developing world.
Using ADRs to Build an Emerging Markets Portfolio
The explosion in ADRs also makes it much easier for American investors to exploit developing demographic trends in the Third World, such as growth in the middle class, expanding consumerism, alternative energy, infrastructure modernization and the like.

For example, ADRs are now traded for 37 companies in the leisure industry, 31 in the household goods and home construction sector, 58 in health care and medical services, 77 in the travel business and dozens more. If you want to play mankind's bad habits, there are even 32 ADRs for companies in the alcohol and other beverages sector as well as three for tobacco companies (though they're all from Europe).

In short, you can use ADRs to concentrate your emerging-market investments virtually any way you want.

You do, of course, need to exercise due diligence in your selections, just as you would with any U.S. stock. Plus, there are a couple of added risks.

Prime among them is liquidity, as trading volume is light in many of the newer or more obscure ADRs, particularly those on the OTC market.

It's also important to recognize "sovereign risk" related to the overall financial health of the ADR company's home country - e.g., a company from Pakistan (yes, there is one), Turkey or even Israel will naturally carry more risk than one from Japan or Europe (even from one of the weak sisters like Spain or Greece).

Be aware as well that, while the ADRs listed here must conform to U.S. accounting and reporting standards, the financial information from the company's foreign executives or accountants may be delayed or questionable in its accuracy.

Still, if you're eager to start investing in emerging-markets, but don't want the "homogenized" version offered by indexes, ETFs or closed-end mutual funds, ADRs could be just the ticket.

Ten ADRs to Start Your Search
With that in mind, here are 10 companies to review in starting your research. I've listed them by home country and industry group.

They include:

•Argentina - Mercadolibre Inc. (Nasdaq: MELI), recent price $94.70 - The market leader in e-commerce in most of Latin and South America.
•Brazil - Banco SantanderSA (NYSE: BSBR), recent price $8.07 -A Brazilian spinoff from a major Spanish bank.
•Chile - Lan Airlines S.A. (NYSE: LFL), recent price $27.96 - A passenger and cargo airline serving Chile, Peru, Argentina, Colombia and Ecuador, with routes around America, Europe and Oceania.
•China - VanceInfo Technologies Inc. (NYSE: VIT), recent price $12.70 - A technology outsourcer with IBM, HP and Microsoft on their customer list.
•Israel - Partner Communications Co. Ltd. (Nasdaq: PTNR), recent price $7.30 - A mobile phone network operator.
•Mexico - Homex Development Corp. (NYSE: HXM), recent price $17.25 - A home developer specializing in entry-level, middle-income and tourist housing in Mexico and Brazil.
•Peru - Cementos Pacasmayo (NYSE: CPAC), recent price $12.00 - A producer and distributor of construction materials, this company also operates several non-metals mines and quarries.
•South Korea - The LGL Group Inc. (Amex: LGL), recent price $7.43 - An information technology company.
•South Africa - Harmony Gold Mining Co. (NYSE: HMY), recent price $9.27 - A company that engages in underground and surface gold mining, exploration, processing and smelting.
•Turkey - Turkcell Iletisim Hizmetleri A.S. (NYSE: TKC), recent price $12.62 - A provider of mobile telecom and Internet services.

Source :http://moneymorning.com/2012/05/07/investing-in-emerging-markets-with-u-s-traded-adrs/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife