Foreign Stocks Draw US Investors

Market in China


Trading in depositary receipts (DRs) worldwide showed resilience in 2011 despite the year’s turbulent second half. The value of trading in DRs globally grew to $3.8 trillion in 2011, up 9% compared with 2010, and companies from Brazil, China, Russia and U.K made significant contributions to those numbers. In Asia, China was followed by India and Australia.  The top sectors globally were oil & gas, mining, internet, banking, and telecommunications. North American institutional investors held over 78% of global institutional investment in DRs, and 96% of that was with US institutions. With direct access to a large DR investor pool, US market share of worldwide trading value in DR programs reached a commanding 88%  (up from 86% 1st H 2011). In other words, almost 9 of every 10 dollars traded in DRs worldwide involved American Depositary Receipts (“ADRs”).

Within the US, ADRs listed on the New York Stock Exchange accounted for 75% (up from 73% 1st H 2011) of the total value of ADR trading. Nasdaq-listed ADRs garnered 22 % and ADRs quoted over-the-counter (OTC) managed 3%.

NYSE-listed Asia Pacific ADRs with deep liquidity included Taiwan Semiconductor Manufacturing (TSM), China’s Youku (YOKU), India’s ICICI Bank (IBN), Australia’s BHP Billiton (BHP), Korea’s SK Telecom (SKM), and Japan’s Toyota (TM). Regionally, NYSE-listed ADRs from Greater China attracted more trading dollars than any other group of NYSE-listed ADRs from the Asia Pacific region, combining to average over $1.1 billion per day. Indian ADRs – with much fewer companies – came in second, with a combined average of almost $210 million per day.

Underscoring investor interest in NYSE-listed ADR programs: the value of trading in the 273 DR programs listed on NYSE in 2011 was almost double the total value of trading in the 2,277 DR programs on Nasdaq, LSE and OTC combined.

As mentioned in my earlier blog describing global DR trading in 1st Half 2011, one measure of an exchange’s ability to provide foreign companies with liquidity is the level of trading activity in DRs listed on that exchange. Such ability could be important to a foreign company seeking liquidity from an overseas listing.

For some companies, liquidity itself may not be the most prominent criteria in choosing an exchange - especially for a company that uses a DR for a secondary listing and already enjoys solid liquidity in its home market. Indeed, there are multiple reasons why a foreign company would seek a US listing, such as direct access to a bigger pool of capital, shareholder diversification, global visibility and enhanced international credibility.

For more information on DR performance in 2011, please see BNY Mellon’s The Depositary Receipt Market 2011 Yearbook, Citi's Depositary Receipt Year-End 2011 Report and JP Morgan’s  2011 Depositary Receipts Year in Review.

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