Stock ownership is becoming more and more globalized. The latest fad - for the more sophisticated investor - involves shares of corporations or financial institutions in less-developed nations.
This is particularly true of shares of companies headquartered and operating in countries of the Western Hemisphere.
The dramatic turnaround in the economic and financial sectors of these Latin-Caribbean nations has been highlighted by a stoppage of capital flight. Numerous institutions and funds now feel that these equities offer real potential.
The money markets in Argentina, Brazil, Chile, Colombia, and Mexico have witnessed the return of locally owned money from banks in the advanced nations.
According to the Bank for International Settlements, deposits from Latin America at banks in the Group of 10 industrialized nations rose sharply from 1988 through March 1991.
Brazilian deposits alone increased 76%, to $23.8 billion. Argentine deposits doubled, to $21.2 billion, and Chilean deposits jumped 180%, to $9.8 billion.
The trend is now reversed: From March to September 1991, according to the report from the settlements agency, Brazilian deposits in the advanced nations' financial institutions went down by $200 million. Argentine-originated monies decreased by $500 million, and Chilean by $800 million. In short, Latin Americans are finding it attractive to invest in their own places.
Mexico is leading the change: The settlements agency showed that Mexican deposits dropped by $1.9 billion, to $28.2 billion, from the end of 1987 to last September.
Many pitfalls remain for international investors seeking to purchase securities denominated in these Western Hemisphere currencies.
Delivery of shares is slow, and accounting procedures are not necessarily up to international standards. Risks, both economic and political, are more pronounced.
Settlement problems and insider trading are rampant. Equally, nonbanking brokerage firms are not subject to capital adequacy requirements and disclosure.
Very significant is the lack of transparency of the individual markets. Trading is too thin. Broker solvency could be put to the test if the market were to decline quickly and dramatically.
But experts says these negative factors take a back seat when compared with the indicated and anticipated gains.
More than $40 billion in private capital flowed into Latin America in 1991, three times the inflow of the previous year. This represented the return of capital that had flown abroad in the '70s and '80s, according to the Inter-American Development Bank.
Most of the currencies of Western Hemisphere nations are fully convertible, since they are in the area where the dollar is readily available for cross-trading. But the variation in exchange rates is so pronounced that shares traded only over the counter are offered through American Depository Receipts - and thus calculated in U.S. dollars.
For the Strong of Heart
The sponsoring firms and the market makers feel they can supply sufficient data to allow analysis of the companies and their financial conditions. But buying Latin American or Caribbean shares takes strong nerves and - most important - patience.
Real impetus for selling and holding shares in these Western Hemisphere corporations requires the collection and dissemination of information compiled and structured according to international standards.
The investment community has not been very effective in gaining acceptance of basic requirements. Until this is systematically achieved, the trend toward acquisition of shares in emerging nations will be mainly a gambling experience rather than an intelligent, rewarding investment.
But the fact that influential Wall Street experts are looking seriously at these values holds promise of real progress.
Still needed are determined sponsors and market makers who will take the time and the effort to provide information and data as the basis for proper investment decisions.
The opportunities are extensive, since the generally excellent health of the Third World economies basically guarantees growth and stability. If privatization is indeed the goal of these nations, knowledgeable observers widely agree that international ownership of their companies' shares is a vital ingredient.