anil Global Equity Markets

8/7/2019 anil Global Equity Markets

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Global Equity Markets

Anil Kumar Angrish

Ph.D.

Assistant Professor,

Department of Pharmaceutical Management,

NIPER


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John Maynard Keynes and an idea for future peace

Inception of International Bank for Reconstruction and

Development (IBRD)

International Monetary Fund (IMF) International Trade Organization (Initially GATT and

then conversion to WTO)

Agriculture (later on part and parcel of WTO)

These were first few institutions which connected the

world and had participation from member nations.


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Global Equity Markets Jean Monnet and European Integration (European

Monetary Union, European Common Market, Euro asa common currency)

Emergence of Japan as an Economic Power(Experience shared by Akio Morita, founder of Sony

Corporation on Made in Japan) Fall of Berlin Wall (Erstwhile Federal Republic of

Germany and German Democratic Republic)

Emergence of Oil Petroleum Exporting Countries

(OPEC) Grouping and issue of Petro Dollars inMiddle East.

Disintegration of erstwhile U.S.S.R. (formation ofCIS Group)


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Emergence ofAsian Tigers Projected growth of BRIC nations (Brazil, Russia,

India and China). (China being the manufacturinghub and India being the knowledge warehouse)

Supply-side Dynamics (Indians as NASA scientists,Microsoft Employees.) vs. Demand-side Dynamics(Great Indian Middle Class by Pavan K. Varma)

Saturation of Domestic Marketin developed nationsand emergence of MNCs

The World is Flat (Thomas Friedman, New YorkTimes columnist and four-time winner of PulitzerPrize)


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Participants and related Norms

Corporate Entities

Stock Exchanges (NYSE, NASDAQ, LSE

etc.)

Credit Rating Agencies (Standard & Poor's,

Moody's Services, Canadian Bond Rating

Agency, etc.)

Entry norms, accounting norms, legal issues,currency issues, language, time zone

differences, etc.


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The New York Stock Exchange (NYSE) dates back to1792, when traders met under a fabled buttonwood

tree close to where the Big Boards floor still stands.

The London Stock Exchange began trading in its

present form in 1801. Amsterdams bourse is older than either.

Yet for most of their history, stock exchanges traded

government bonds far more than equities.

Interest in shares was limited, confined largely to

wealthy individuals (High Net worth Individuals)

and a few institutions.


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1980s: Margaret Thatcher and Ronald Reagan, as

chief inspirations for both privatisation and the spreadof share ownership.

Second, there has been a growing appreciation of thehuge demographic challenge that faces mostcountries pension systems.

The old ways of relying on state pensions and pay-as-you-go financing both look increasinglyunsatisfactory.

Greater emphasis on privately funded pensions.

Third, almost all investors, almost everywhere, havecome to understand that, in the long run, only shareshold out the promise of sufficiently large returns topay for peoples pensions.


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Global Equity Markets In America, nearly half of all households now own

shares, either directly or through mutual funds, 401(k)

plans or directly managed pension plans. In Australia, the level of share ownership is even

higher.

In Britain, the proportion is a little over one-quarter.

Germany and France still lag, with less than a fifth ofthe population owning sharesbut, thanks not least toprivatizations, they have made tremendous stridesfrom a far lower base.

The number of shareholders in Germany now exceedsthat of trade union members.

Even in Japan, despite its long bear market, the stockexchange claims that around 30m individuals now ownshares directly or indirectly.


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Global Equity Markets Equitisation has microeconomic effects as well.

Equitisation of innovation in the 1990s, by which hemeans that venture (or private equity) capital wasfreely provided to innovators, especially in thetechnology business, in the knowledge that there wasan early and profitable exit route through an initial

public offering (IPO). Equity flows across borders account for a growing

share of all capital flows, so they are helping todetermine the course of exchange rates and the balanceof trade. (Emergence of Country Funds, tax havensfor money laundering, foreign institutional investors(FIIs), Overseas corporate bodies (OCBs)..)

Rise of TMT/ICE stocks (New Economy vs. OldEconomy stocks) and bubble bursts (Dotcom era)


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The world equity market is evolving rapidly due tochanges in technology, changes in regulations, and

falling barriers to international trade.

The demise of dozens of U.S. stock exchanges.

The NYSE gained its dominant position in industrial

stocks in the U.S. by aggressively using the then new

technology of the stock (Similar to the rise of NYSE

is the rise of NSE in India)

The reduction in communication costs (A classic

case of a technology-based shakeout of the U.S.

equity markets)


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Global Equity Markets Regulator, Governing Statute, Participants,

Regulation (Entry, Operation and Exit)

Securities Exchange Act of 1934

Securities and Exchange Commission

(Equivalent to SEBI in India) Regulated Entities: corporate entities, credit

rating agencies, stock exchanges, mutual

funds, venture capitalists,


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Global Equity Markets Australia (All Ordinaries) or Austria (ATX)

Belgium (Bel 20)

Britain (FTSE 100) Canada (Toronto Composite)

Denmark (OMXCB)

France (SBF 250) or France (CAC 40)

Germany (DAX)

Italy (S&P / MIB)

Japan (Nikkei 225) or Japan (Topix)

Netherlands (AEX)

Spain (Madrid SE)

Sweden (Affarsvarlden Gen) Switzerland (Swiss Market)

United States (DJIA) or (S&P 500) or United States (NASDAQComp)

Europe (FTSEurofirst 300) or Euro area (FTSE Euro 100)

World (MSCI)


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European Market

The MSCI (Morgan Stanley Capital International) EurozoneIndexs performance in 2006 surpassed that of the MSCIEmerging Markets to steal the top slot.

Incidentally, the MSCI index for Europe (excluding Britain)has improved its ranking in the last two years.

The MSCI Emerging Markets Index steadfastly at the secondspot for the past three years.

Other Major events

(a) Alliance of European stock market operator Euronext andthe New York Stock Exchange backed by 98.2 per cent of

shareholders and(b) Reiteration of opposition of London Stock Exchange Group

Plc, Europes biggest stock exchange to a US $ 5.3 billionhostile bid from the US rival Nasdaq


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Japanese Market

Japan is Worlds Number 2 and Asias biggest

economy. Deflation to Inflationary Economy A Transition

In November 24, 2006 report of Merrill Lynch & Co.,it was reported that the savings rate probably shot upfrom 12.3 per cent of disposable income to 13.9 per

cent. Other major concerns for the economy remain massive

public debt, aging population and declining birth rate.

By the second week of December, 2006, Japans

Nikkei 225 Stock Average gained 0.6 per cent to16,417.82.

The Japanese index Tokyo SE First Section, hadperformed best in 2005, turned out to be the worst in2006 so far.


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Emerging Markets

Investors in emerging markets added moremoney to stock funds in Second week ofDecember than at any time in seven months.

The Morgan Stanley Capital International

(MSCI) Emerging Markets Index tracks 25developing markets.

The MSCI Emerging Markets Index has rallied33 per cent since reaching its low for the yearon June 13 as the US Fed stopped raisinginterest rates after 17 consecutive increasesand commodities prices rebounded.


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Emerging Markets

Brazil, Russia, India and China, (the so-called

BRICs markets as popularized by 2003 GoldmanSachs Report, represent nations with the potential tobecome dominant economies), have led the advance,with share indices in each country setting records.

Among country funds, China-related funds attracted

the most buying. In the second last week of December, 2006 itself, the

investment committee ofCalPERS(California PublicEmployees Retirement System) has voted to allow

the biggest US pension fund (having corpus $225-billion) to invest in stocks of companies in China,Russia and other emerging markets on a case-by-casebasis.


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Asian Markets

Of the worlds top ten performing equity bourses,

Asia boasts four: the VietnamsH

o Chi Minh StockIndex up 150% in 2006, the Shanghai Shenzhen 300Index up 109 per cent, Hong Kongs Hang SengChina Enterprises Index up by 68 per cent andIndonesias Jakarta Composite Index up by 67 per

cent. Over the last 12 months, stock markets in Thailand,

Malaysia and Korea have posted impressive gains.

On December 19, 2006, Thailands central bankimposed stringent restrictions on the Thai baht as itrequired banks to lock up 30 per cent of new currencydeposits for a year to curb speculation and the stockmarkets in Thailand witnessed the steepest fall (theSET Index, Thailands benchmark plunged 15 percent) in 19 years.


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Asian Markets

Chinese stocks are the second-best performing in

Asia after Vietnam. The Shanghai Composite, which has almost doubled

in 2006. The index is valued at 34.8 times reportedprofit, more than its average in the past year of 24.8times. It seems to be extremely overbought.

One critical distinction in Chinese Market:

Those permitted to purchase them. Chinese residentsmust invest through the mainland markets in so-calledA-shares; non-Chinese investors are mostly restricted

to buying Hong Kongs H-shares, in Hong Kongdollars and the result is discount of H-shares to A-shares. The discount of H-shares to A-shares hasnarrowed over the past six years from about 90% tobelow 30%.


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Chinese stock market

Some encouraging moves as reflected in the decision

that several foreign firms and investments groups havebeen granted the rights to own limited amounts of A-shares.

New foreign bank guidelines on November 16 to fulfill

its obligations for entry into the WTO, which stipulatesthat the country must further open its banking sector tooverseas competition.

A significant development in IPO marketwas that Chinaproduced the two biggest global IPOs in 2006 ICBC,which raised $22 billion and Bank of China, whichraised $11 billion.


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Indian Market

Bombay Stock Exchanges 30-stock Sensitive Index

is up around 46 per cent so far this year and ittouched all-time high of 14,000 marks.

The BSEs Sensex has given an average daily returnof around 0.2 per centover the past one year, whichis twice the return given by its closest rival, the South

African index. All othermajor world stock indices including the US,

the UK, France, Hong Kong, Singapore, Australia,Malaysia, Mexico and Japan have given a dailyaverage return of below 0.1 per cent.

Daily average volatility has been on a gradual declineover the past few months after surging to as high as3.25 per cent in June 2006.


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Indian Market Year 2007, the capital market is all set to witness a surge in

equity offerings (including some of the largest ever given the

fact that about 450 companies are expected to raise Rs.1,50,000 crore).

A flood of Indian companies is poised to join LondonsAlternative Investment Market (AIM) in 2007, with morethan 20 listings expected to raise at least 2.5 billion pounds.This year, a total of 11 Indian listings on AIM raised morethan one billion pounds.

Infosys Technologies found a slot in the Nasdaq Top 100index and became the first Indian company to get into theindex that represents the largest non-financial domestic andinternational securities listed on the Nasdaq Stock Market

based on market capitalization. Debt market: In 2006, India has become the second biggest

borrower in Asia Pacific by borrowing over $3.7 billion forproject financing, taking a big jump from its 10th position lastyear.


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Middle East

Islamic Countries and Shariah compliant

financial products (Interest prohibited)

Petro Dollars of 1970s and 1980s and

movement of capital from Middle East

Economies to Europe

Composition of Forex Reserves (Dollar vs.

Euro)


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Selective Global Stock Exchanges


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NYSE Group, Inc. (NYSE:NYX)

Operates the New York Stock Exchange (the "NYSE")and NYSE Arca and the Pacific Exchange).

NYSE Group is a leading provider of securitieslisting, trading and market data products and services.

As of December 31, 2005, the NYSE was home toapproximately 2,672 world-class issuers, (Includesoperating companies, closed-end funds and exchangetraded funds.)

NYSE traces its origins to 1792, when 24 New YorkCity stockbrokers and merchants signed theButtonwood Agreement.


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Listing Fee Schedule

When determining Listing Fees, calculations aremade at each level of the schedule up to andincluding the last level applicable to the number ofshares being listed.

The total Listing Fee equals the sum of the amountscalculated at each level of the schedule.

The Listing Fee schedule for equity securities is asfollows:

Number of Securities Issued Fee Per Share

Up to and including 75 million $0.0048

Over 75 million up to and including 300mn $0.00375

Over 300 million $0.0019


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Financials Earnings: Aggregate Pre-tax Income for last 3 years

$100MM (Worldwide) $10MM (Domestic) and Minimum Pre-Tax Income in each of 2 preceding years $25MM (world wide)and $2MM (all 3 years must be positive)

The first time that an issuer lists a class of common shares, theissuer is also subject to a one-time special charge of $37,500, in

addition to fees calculated according to the Listing Fee schedule. Listing Fees for the following types of listings are also calculated

under the Listing Fee Schedule:

At the time it first lists, an issuer lists one or more classes ofpreferred stock or warrants, whether or not common shares are

also listed at that time; Once listed, an issuer lists additional shares of a class of

previously listed securities; or

Once listed, an issuer lists a new class of preferred stock or

warrants.


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Indices

FTSE (Financial Times Footsie)

Dow Jones (USA)

S&P 500 (USA and global)

Nikkei (Japan)

Bovespa (Brazil)

Heng Seng (Hong Kong) NSE and BSE (India)


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Global Equity Markets Foreign Private Issuer

A foreign private issuer listing 125 million ADRsrepresenting ordinary shares as part of a worldwide500 million share offering, assuming that all 125million ADRs are issued in the United States, willpay total Listing Fees of $250,000 as follows:

The special one-time charge is $37,500. The Listing Fee for the first 75 million ADRs is

calculated at the rate of $0.0048 per ADR.

The Listing Fee for the next 50 million shares is

calculated at the rate of $0.00375 per ADR. Since Listing Fees on an original listing of the ADRs

are subject to a maximum fee of $250,000 and thecalculated amount exceeds this maximum, the ListingFee will be $250,000.


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The London Stock Exchange

One of the worlds oldest stock exchanges and cantrace its history back more than 300 years.

Starting life in the coffee houses of 17th centuryLondon, the Exchange quickly grew to become the

Citys most important financial institution. Over the centuries following, the Exchange has

consistently led the way in developing a strong, well-regulated stock market and today lies at the heart of

the global financial community. Dominant in Europe (Compared to Frankfurt Stock

Exchange, Deutsche Borse or La Borsa)


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Global Equity Markets 1991: The governing Council of the Exchange is

replaced with a Board of Directors drawn from theExchange's executive, customer and user base. Thetrading name becomes The London StockExchange.

1995: Launched AIM our international market forgrowing companies.

1997: SETS (Stock Exchange Electronic TradingService) is launched to bring greater speed andefficiency to the market.

2000: Transfer the role as UK Listing Authority withHM Treasury to the Financial Services Authority(FSA). Shareholders vote to become a public limitedcompany: London Stock Exchange plc.


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Global Equity Markets Investors who buy shares in companies quoted onAIM are participating in the world's leading stock

market for smaller growing companies. AIM companies: From 26 countries and range across

37 market sectors and 90 sub-sectors, providing alltypes of investors with a vast range of choice inseeking out businesses to fit their investment profile.

State of the art technology

AIM is wholly-owned and run by the London StockExchange.

Trading platforms are the most sophisticated in the

world, and have a truly global network. AIM share prices are displayed on over 90,000

terminals worldwide.


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Global Equity Markets Alternative Investment Market (AIM) of theLo

ndo

n Sto

ck Exchange affords smaller capcompanies access to the capital markets through amore streamlined process than an IPO in the UnitedStates (or even the primary trading market (or theOfficial List) of the London Stock Exchange).

The inability of smaller companies to interestinvestment bankers and analysts as well as the limitedliquidity of small cap companies has hurt ordestroyed the US public markets for small companies.The advent of Sarbanes-Oxley and other corporate

governance requirements have made it prohibitivelyexpensive to be a small public company in the US.

Accordingly, smaller companies are looking abroadfor capital.


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NASDAQ

The largest U.S. electronic stock market.

With approximately 3,200 companies, it lists more

companies and, on average, trades more shares per

day than any other U.S. market.

It is home to companies that are leaders across all

areas of business, including technology, retail,

communications, financial services, transportation,

media and biotechnology. NASDAQ is the primary market for trading

NASDAQ-listed stocks.


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Global Equity Markets New York, August 1, 2006 The Nasdaq Stock

Market, Inc. (NASDAQ: NDAQ) has becomeoperational as an exchange in NASDAQ-listedsecurities, effective today.

An independent self-regulatory organization,separate from NASD.

NASDAQ plans to become operational as anexchange in other exchange -listed securities onOctober 1, 2006.

Transition to a national securities exchange, the

securities of companies that were listed on NASDAQand registered under the Securities Exchange Act of1934 or the Investment Company Act of 1940 havebecome registered under Section 12(b) of theExchange Act.


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Rating Agency: S&P

A merger in 1941 of Standard Statistics and Poor'sPublishing Company traces its roots to 1860 whenHenry Varnum Poor published his History ofRailroads and Canals of the United States.

Mr. Poor was a leader in establishing the financialinformation industry on the principle of "theinvestor's right to know."

Today, more than 140 years later, Standard & Poor's

is the world's foremost provider of independent creditratings, indices, risk evaluation, investment researchand data, and is still delivering on that originalmission.


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Global Equity Markets Unparalleled depth and breadth in coverage and analysis

Over $1.1 trillion in investment assets is directly tied to S&P

indexes and more than $4 trillion is benchmarked to S&Pindices - more than all other index providers combined.

The total amount of debt S&P rated in 2005 wasapproximately US$4.7 trillion. (Outstanding debt rated byS&P globally is approximately US$34 trillion.)

In 2005, S&P Ratings Services published more than 500,000ratings, including 294,000 new ratings and 260,000 revisedratings. We have issued ratings on debt securities in more than100 countries.

The S&P Global 1200 covers 31 markets and approximately70% of global market capitalization.

S&P Equity Research is among the world's leading providersof independent investment information, offering fundamentalcoverage on over 2,000 stocks

Standard & Poors is the pre-eminent source of fundamentalcompany and security data.


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Global Equity Markets Standard & Poor's, a division of The McGraw-HillCompanies

(NYSE:MHP), is the world's foremost provider of financial

market intelligence, including independent credit ratings,indices, risk evaluation, investment research and data.

With approximately 7,500 employees, including whollyowned affiliates, located in 21 countries, Standard & Poor's isan essential part of the world's financial infrastructure and hasplayed a leading role for more than 140 years in providinginvestors with the independent benchmarks they need to feelmore confident about their investment and financial decisions.

Founded in 1888, The McGraw-Hill Companies is a leadingglobal information services provider meeting worldwideneeds in the financial services, education and business

information markets through leading brands such as Standard& Poor's, McGraw-Hill Education, Business Week and J.D.Power and Associates.

The Corporation has more than 290 offices in 38 countries.Sales in 2005 were $6.0 billion.


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Instruments

Global Depository Receipts (GDRs)

American Depository Receipts (ADRs)

Petro Bonds

Eurobonds

Islamic Banking Products

Securitization Instruments Equity

Derivatives


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