International Equity Market

Investors in many countries have been exhibiting interest in acquiring equity investments outside their countries. Investment in foreign equity is of two types- direct investment (DI) and portfolio investment. Individuals and multinational corporations make investment in listed equities of foreign firms. While individual investors acquire shares as investment, multinational corporations invest in shares of a company of a foreign country so as to acquire a controlling interest over management. They may even start subsidiaries in foreign countries with 100 percent equity ownership. These are all called direct foreign investments. Institutional investors like pension’s funds, mutual funds, investment companies etc., and share like listed in stock exchanges to derive benefits from international portfolio diversification. The existence of a well-developed secondary market is a pre-requisite for investing in equities of companies by foreign investors. A company can raise equity capital in international market in two ways:

• By issuing shares in Euro market which are listed on the foreign stock exchange.
• Through the issue of America Depository Receipt (ADRs) or European Depository Receipt (EDRs) or Global Depository Receipts (GDRs).

Major companies today not ignore equity markets outside their countries while embarking on a substantial issue of shares. Particularly non- US multinationals have found that the domestic markets cannot cater to their financial needs; hence they are searching for equity funds from foreign investors. This tendency is strengthened by the fact that institutional investors have been paying attention to international diversification of portfolio investments. The expansion of the Euro-equity market has been facilitated by a number of factors and innovations. They are:

• International syndicates of banks to act as lead managers and brokerage firms that are capable of handling euro-issues within short period of time have emerged.
• Syndication and distribution fees for euro equities are much lower compared to domestic issues.
• Innovative approached to investment in foreign equities have been made to overcome stringent regulations in the U.S. firms and U.S. MNCs desiring to avoid lengthy and costly registration requirement for domestic equity issues started issuing new instruments.