Perspective on Global Investing

Perspective On Global Investing
by Paul Halpern

Some of the words that capture the content of the conference are Risk, Technology, Globalization and Corporate Governance--all within the overall context of Change. The first two papers at the conference effectively provided an overview of changes in the global investment environment and the first exposure to key concepts. The first paper argued persuasively that the world is in transition, with changes in technology, government attitudes and consumer empowerment ultimately leading to new investment strategies. The next presenter spoke on 'change' in the context of Global Straight Through Processing and how it will impact every market in the world. Speed and accuracy in processing trades are crucial to the efficient functioning of securities markets and countries in which processing is not improved will lose out in global capital market competition.

There were two presentations on the United States. One considered the long-run performance of American Depository Receipts (ADRs)--foreign listing of equity on U.S. exchanges--where new funds are being raised. The issues can be implemented either through a private placement or a regular equity offering; each has different information disclosure requirements. The conclusion is that long-run performance is not very strong (an observation that is similar to the performance of domestic IPOs), which may be related to asymmetry of information for the firms as observed in the form of the ADR used. The other presentation focused on growth stocks and the payoffs of finding true growth stocks.

No global conference would be complete without a discussion of the importance of international diversification. While identifying the diversification benefits, the presentation also provided an example where in an efficient set of portfolios combining foreign and Canadian securities, a strong short position in Canadian securities is optimal! (so much for raising the cap on foreign property to 30% to address the foreign content issue.)

With global investing, there are associated ethical issues. The presentation on this issue raised a number of interesting points for pension fund trustees and investment managers to consider. The discussion was lively and the conclusion was that there is no moral bright line that will solve ethical problems; there are only questions to be considered and investment positions to be reviewed in light of the analysis.

Sessions on regional perspectives were provided, including the Pacific Rim (Japan, Hong Kong, Singapore, Korea, and Taiwan), Europe, emerging markets and the United States. One theme that was carried through in a number of the presentations dealing with some Asia Pacific and European economies was the growing importance of corporate governance and effective capital markets--the former providing internal and the latter external discipline of management. The changes are strongest in Europe, with the growth of (activist) pension funds, reduction in the influence of banks, and a focus by companies on shareholder value. These forces are also present in the Asia Pacific region, leading to a substantial amount of restructuring, with emphasis on technology and information-related industries. Changes in corporate governance and reliance on capital markets are positive signs and will lead to more effective corporations in the longer run.

Paul Halpern is the TSE Chair of Capital markets and Director of the University of Toronto Capital Markets Institute.

Transcontinental Media G.P.