9.) Overseas Equities Flashcards
Define the benefits of overseas investment
Diversification of an investment portfolio to spread the risk, I.e. no longer UK-centric
Sector spread and gaining access to industries not available in the UK, I.e. diamond mining
Growth in overseas economies making overall returns potentially higher
Currency movements between sterling and overseas currency could generate higher profits when sterling falls against the overseas currency
Define the drawbacks of overseas Invetsment
Investment in overseas equities is generally deemed to be riskier than investment in UK equities. The main drawbacks include:
Currency fluctuations - sterling strengthens against the overseas currency
Political considerations (stability of the country/government)
Tax implications on income earned overseas
Adequacy of regulation and reporting requirements
Higher handling costs
Delays in settlement, delivery of certificates, restrictions on non-resident shareholder rights
Language and time differences
Briefly describe why London is ideally placed for trading in overseas markets
Due to its location in the so-called ‘Golden Triangle’ of New York, London and Tokyo.
London can transact business with Tokyo during normal working hours at the start of the day, and at the end of the day, the close on the London Market overlaps with the opening of the New York Market
Define the major overseas equity markets for a UK investor
USA
Canada
Japan
Australia
South Africa
Hong Kong
Singapore
European markets
The Emerging markets (Indonesia, Mexico)
Define the principal stock exchange in the USA
The New York Stock Exchange (NYSE)
Define the acronym NASDAQ
National Association of Securities Dealers Automated Quotation system
A global electronic marketplace for buying and selling securities, as well as the benchmark index for stocks in US technology firms
Give several examples of stock markets, other then the LSE or NYSE
Tokyo Stock Exchange (Japan)
Deutsche Borse (Germany)
Euronext (the merged Paris, Brussels and Amsterdam Exchanges)
Define bearer securities, a common form of foreign security
Foreign securities commonly exist in bearer form
With bearer securities, no register of the names and addresses of shareholders is kept, and the share certificate detest show the holder’s name.
The holder of a bearer share is deemed legally to be the owner, and therefore these forms of certificate must be kept in a secure place to prevent loss or theft
Define and describe the method by which bearer securities, a common form of foreign security/overseas equity, can be transferred (I.e. sold)
Any dividends from bearer securities must be claimed from paying agents (banks) by exchanging the relevant coupons, which are attached to the share certificate.
Investors are informed of when to submit the coupons via advertisements in the financial press.
Therefore, it is important that shares are delivered in good condition, with all relevant coupons attached.
Define registered securities, a common form of foreign security, and how they can be transferred (I.e. sold)
Securities issued by companies in the USA and Canada are usually in registered form.
With registered form securities, names and addresses of shareholders are kept on the company’s register and the name of the shareholder is printed on the share certificate.
One the reverse of the share certificate is the Form of Transfer, which allows the shareholder to transfer (sell) their security, should they wish to do so.
Define the key difference between registered and bearer securities, both common forms of foreign security, regarding information that is registered, or not
With registered form securities:
Names and addresses of shareholders ARE kept on the company’s register
The name of the shareholder IS printed on the share certificate
…Whereas in the case of bearer securities, the above information IS NOT recorded
Define ‘transferring’ an asset
Selling it
Define the process of marking certificates, as a way of transferring (I.e. selling) overseas equities
For shares issued by USA and Canadians companies, it is usual practice for shares to be registered in good or recognised marking names.
The marking name is usually a bona fide nominee company of banks, stockbrokers, and accountants.
Securities that are registered via a nominee company will normally command higher prices, as the buyer can see that the holding is registered to the order of a good market name, which will claim all relevant dividends and manage the shareholding accordingly.
As a result, ownership may change, but the marking name remains the same.
Define American/European Depositary Receipts, both common forms of foreign security, and how they can be transferred (I.e. sold)
Many American investors deal in UK registered shares, and when UK shares are held outside the UK, in America, the shares are transferred to a nominee account, which will issue an American Depositary Receipt (ADR), or a European Depositary Receipt (EDR) in the case of USA and Japanese securities that are traded in Europe.
Holders of EDRs and ADRs must register their interest with the depository bank to ensure that they receive dividends, notices of meetings and all other relevant communication relating to their shareholding
Define the acronym ADR
American Depositary Receipt
