Lesson 6 of 8 · All lessons in this module
- Equity versus debt, why companies issue shares, and equity in global markets
- Common shares: voting rights, share classes, callable and putable shares
- Preference shares: cumulative, participating and convertibleVideo lesson
- Integrated cases: share classes, control and the liquidation ladder
- Private versus public equity: venture capital, buyouts and PIPEs
- Investing in foreign equity: direct, depository receipts, GRS and BLDRs
- Risk and return of different equity securities
- Book value, market value, ROE and the cost of equityVideo lesson
Lesson 6 of 8 · 14 min
Investing in foreign equity: direct, depository receipts, GRS and BLDRs
You can buy foreign shares directly in their home market, or buy a local-currency proxy for them: a depository receipt, a global registered share or a basket of DRs.
In short
- Market integration lets companies raise capital abroad and lets investors diversify with assets that have lower correlation with home assets.
- Countries restrict foreign ownership to limit foreign control, give domestic investors a stake in foreign firms operating locally, and dampen volatile capital flows.
- Direct investing: trade in the foreign market and currency, with its rules; often less transparency and more volatility.
- A depository receipt (DR) trades locally and represents shares deposited with a bank. Sponsored DRs involve the company and give holders voting rights; with unsponsored DRs the depository bank keeps the votes.
- GDRs trade outside both the home country and the US; ADRs are USD securities traded in the US (Levels I, II, III and Rule 144A).
- A global registered share (GRS) is the same share traded in different currencies on several exchanges; a BLDR is an ETF holding a portfolio of DRs.
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