Best of the Week
Most Popular
1. Best Cash ISA Savings Account for Soaring UK Inflation - February 2018 - Nadeem_Walayat
2.Gold Price Forecast 2018 - February Update - Nadeem_Walayat
3.Bitcoin Crypto Currencies Crash 2018, Are We Near the Bottom? - Nadeem_Walayat
4.Trump Bubble Bursts, Stock Market Panic Dow 1175 Point Crash Analysis - Nadeem_Walayat
5.Gold Corrects, Bitcoin Markets Crash, Whilst Stocks Plunge - Nadeem_Walayat
6.US Treasury Bonds: Fuse to Light the Bonfire - Jim_Willie_CB
7.Dow Falls 666 Points As Cryptocurrencies Crash And Krugman Emerges From His Van - Jeff_Berwick
8.Stock Market Roller Coaster Crash Ride Down to Dow Forecast 23,000 - Nadeem_Walayat
9.Trading the Shadows - Oil, Dollar, Stocks, Gold Trend Analysis - B.R. Hollister
10.Stock Market Analysis: Baying for Blood - Abalgorithm
Last 7 days
How Inflation Reduces The Real Value Of Social Security Net Of Medicare Premiums - 19th Feb 18
Could Stellar Lumens be a Challenger to Bitcoin for International Payments? - 19th Feb 18
US-China Trade War Escalates As Further Measures Are Taken - 19th Feb 18
How To Trade Gold Stocks with Momentum - 19th Feb 18
Is a New Gold Bull Market on the Horizon? - 19th Feb 18
Stock Market Decision Point! - 19th Feb 18
An Inflation Indicator to Watch, Part 1 - 18th Feb 18
Get on Top Of Debt Before It Gets on Top of You - 18th Feb 18
Will the Stock Market Make a Double Bottom? - 18th Feb 18
5 Reasons Why Commodities Are the Investment Place to be in 2018 - 18th Feb 18
1 Week Later, Stock, Bond Market Risk Remains ‘On’ as 2 of 3 Amigos Ride On - 17th Feb 18
Crude Oil Prices: A Case of Dueling Narratives? - 17th Feb 18
Free 1000 Youtube Subscribers Services - YTpals, Subpals, SubmeNow Test - 17th Feb 18
How to Trade as We Near March Stock Market Top - 16th Feb 18
Bitcoin as Poison - 16th Feb 18
GDX Gold ETF Weathers Stock Market Selloff - 16th Feb 18
Casino Statistics and Demographics - 16th Feb 18
IS Today Thee Stock Market Turn Day? - 16th Feb 18
Huge SMIGGLE Shopping HAUL, Pencil Cases, Drinks Bottles, Back Packs, Toys.... - 16th Feb 18
Tesla Cash Keeps Burning at $320 a Share - 15th Feb 18
Big Conflict Ahead in the Financial Markets - 15th Feb 18
Stocks Extend Rally Off Friday's Low, But Short-Term Exhaustion Near - 15th Feb 18
Stock Market Out on a Limb... - 15th Feb 18
Things Only a True Friend Would Say About Gold - 14th Feb 18
Global Debt Crisis II Cometh - 14th Feb 18
Understanding Crude Oil Behavior - 14th Feb 18
Stock Market is Getting Scary... - 14th Feb 18
Stock Market - This Time is Different. Really?! - 13th Feb 18
Gold and Silver Long-term Buy, Short-term Sell Signal - 13th Feb 18
SPX Futures Are Sliding... - 13th Feb 18
Stock Market Topping Process Begins. The Bubble Finds its Pin - 13th Feb 18
Math Behind the Stock Market Crash and What’s Next – PART2 - 13th Feb 18
Gold Stocks Groundhog Week - 13th Feb 18
Platinum Looks Poised for Surprising Gains This Year - 12th Feb 18
Friday's S&P 500 Stock Market Bounce To Continue, But Selling May Resume - 12th Feb 18
The Inflation Trade and Bond Yields Rising Result in Equities Correction - 12th Feb 18
February 2018 Stock Market Crisis – What Next? - 12th Feb 18
How To Profit From The Bitcoin Bloodbath - 12th Feb 18
The Philippine Economic Dream Could Be Within the Reach  - 12th Feb 18
Is the Stock Market Correction Over? - 12th Feb 18
What Does the Stock Market Decline Mean for Gold - 12th Feb 18
Addicted to SMIGGLE Mega Review, Pencil Cases, Stationary, Back Packs, Drinking Bottles, Toys... - 12th Feb 18
Best Cash ISA Savings Account for Soaring UK Inflation - February 2018 - 11th Feb 18
The Fed’s Impossible Choice, In Three Charts - 11th Feb 18
US Stock Market, Gold, Silver and the Macro Backdrop - 11th Feb 18
After Two weeks of Stock Market Decline, People Are Ssking, “Are We There Yet?” - 11th Feb 18
How to Grow Tomatoes From Seeds, Homegrown Organic Money Saving Gardening - 11th Feb 18
Youtube KILLS ALL Small Channels with New DeMonetization Rules - 11th Feb 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

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

© 2005-2018 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

6 Critical Money Making Rules