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Which Stocks Can Foreigners Own? (Part 1)

15 October 2007 - Features - Editor

Foreign participation in Exchanges is an evolving matter in the brave new world of global ownership of stocks. All countries have to be careful to keep out terrorist funds from their stock markets, but some also express nationalist and protectionist aspirations in the process of restricting foreign ownership and trading in their stocks. Globalization of trade and commerce can scarcely be complete unless international investors are given a free hand, and there needs to be long term stability in cornerstone policies as well, to prevent shocks such as experienced recently with respect to Venezuelan oil assets.

The current Russian government has also injected a new trend in to world trading in stocks, by making concerted moves to use economic powers for political aims. The Indian and Chinese economies also have sizeable government influences. What does all this mean for individuals who would like to venture beyond their national boundaries to search for the best stocks?

Global Variations in Rights to Own Stocks

Most global corporations have distinct corporate entities in foreign countries, especially in key markets. Even if equity participation abroad is avoided, values of completely indigenous companies can be affected by changes of ownership in supplier, distributor, or consumer entities. Significant revenues or critical supplies may be turned off suddenly when controlling stocks of corporations listed in exotic Exchanges change hands. The risks are relatively manageable in the first world where regulators are well equipped, with transparent judicial processes. However, important parts of the emerging world are full of examples where national bodies governing Exchanges lack comprehensive laws and jurisdiction. Finding out where companies in which you own stocks make their profits, and from where they source vital supplies, are new but relevant steps for all serious investors.

Variations between the laws governing the workings of Exchanges become even more relevant when investors cross national borders in expeditions for the best stocks. Scandinavian countries and Dubai have pioneered liberal screen-based trading in stocks in more than one currency, with common memberships and rules across neighboring borders.

Dubai has also been as aggressive as NASDAQ in making decisive moves to acquire stocks of Exchanges abroad. Even countries with socialist pasts such as India have begun to loosen restrictions on foreign ownership of stocks. We may expect Exchanges and countries with the most liberal facilities for global trades in stocks to emerge as the most successful financial centers of the future. The fact that Dubai has been able to acquire stocks of NASDAQ without any significant protest, quite soon after the country was staunchly denied approval to manage US ports, is a sign of the times. A major part of the reason for the ease with which a Middle East entity has been able to seize a portion of such a delectable American pie could be the professional credentials of the acquiring firm. This could also be a valuable lesson for investors who invest abroad, or those whose key stocks are buffeted by foreign acquisition moves: the educational and professional backgrounds of key executives can provide valuable clues to future effects of foreign ownership influences.

Which Stocks Can Foreigners Own? (Part 2)

 


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