Two contrasting views on US equity ownership of foreign stocks: will it affect IRO’s targeting of US investors?
The key US institutional managers continue to grow in the influence, so why has E*Trade, the trading platform aimed squarely at individual investors, decided to promote non US stocks?
Research is now showing that institutions own more than 61% of US equity and that this number has grown rapidly in recent years, up from 30% in the 80’s, and 50% in 2002. And the same research is showing that ownership of foreign equity is also rising fast. Clearly, as a result, European companies in their new investor targeting have focussed their energies on relevant sectors in this area.
However this week E*Trade made perhaps a surprising announcement: The New York-based company said its new Global Trading Platform will allow E*Trade's individual-investor customers in the U.S. to buy, hold and sell foreign shares in their local currency in six key markets. E*Trade is starting with online trading for stocks in Canada, France, Germany, Hong Kong, Japan and the United Kingdom, but it also is offering broker-assisted trading in additional countries and hopes to eventually include as many as 42 international markets and related currencies in the online system.
Buying foreign equity directly goes beyond more usual ways for individuals to invest overseas, such as buying an internationally-focused mutual fund or the American depositary receipts of a foreign company.
In response, E*Trade cite a recent survey of their brokerage customers, which found that fully two-thirds of those polled are interested in trading on exchanges outside the U.S.
But the expanded access to foreign equity raises questions about access to information. E*Trade notes that their investors will find different standards in areas such as corporate disclosure, accounting, regulation and business customs. Information on foreign companies may not be as easily available as on American companies.
Which suggests that European companies planning their US IR communications should consider using the broadcast media to reach these investors.
Research is now showing that institutions own more than 61% of US equity and that this number has grown rapidly in recent years, up from 30% in the 80’s, and 50% in 2002. And the same research is showing that ownership of foreign equity is also rising fast. Clearly, as a result, European companies in their new investor targeting have focussed their energies on relevant sectors in this area.
However this week E*Trade made perhaps a surprising announcement: The New York-based company said its new Global Trading Platform will allow E*Trade's individual-investor customers in the U.S. to buy, hold and sell foreign shares in their local currency in six key markets. E*Trade is starting with online trading for stocks in Canada, France, Germany, Hong Kong, Japan and the United Kingdom, but it also is offering broker-assisted trading in additional countries and hopes to eventually include as many as 42 international markets and related currencies in the online system.
Buying foreign equity directly goes beyond more usual ways for individuals to invest overseas, such as buying an internationally-focused mutual fund or the American depositary receipts of a foreign company.
In response, E*Trade cite a recent survey of their brokerage customers, which found that fully two-thirds of those polled are interested in trading on exchanges outside the U.S.
But the expanded access to foreign equity raises questions about access to information. E*Trade notes that their investors will find different standards in areas such as corporate disclosure, accounting, regulation and business customs. Information on foreign companies may not be as easily available as on American companies.
Which suggests that European companies planning their US IR communications should consider using the broadcast media to reach these investors.
posted by Mark Hynes @ 1:38 pm
3 Comments:
At 11:14 pm,
Dominic Jones said…
If European companies want to be more attractive to U.S. individual investors they would do best to start with a study of Regulation FD. U.S. individual investors expect to be treated the same as professional investors.
No special treatment, just equal treatment.
At 10:23 am,
Mark Hynes said…
Many thanks Dominic. Of course you are right; European companies registered in the US should follow Reg FD, even though technically they do not have to.
My point was the European companies typically their IR communication outreach efforts more on institutional investors than on retail. E*Trade's decision to trade European stocks may - should - make them reconsider this.
At 4:45 pm,
Dominic Jones said…
Mark,
To be fair, U.S. companies are mostly only more retail friendly because they're required to be. It probably wouldn't be so without FD.
My point really was that regardless of whether or not they're U.S.-listed, European firms need to understand what the impetus was for FD. It was the result of a democratization of investing by the Internet and firms like E-Trade that opened retail investors' eyes to the reality that they are discriminated against. This created the political pressure for regulators to act.
So when these same American retail investors start looking at European companies, they're going to be viewing them through the same lens. Companies that don't webcast all of their investor presentations (and far too many don't) are not going to be attractive targets for these investors. The way many European smaller companies handle news is also very problematic.
So for me, it's really a PR/marketing issue rather than a compliance one. Even if there's no legal obligation, from an U.S. online retail investor's perspective, there's a moral obligation on companies to treat everyone the same.
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