DR trading turnover at record highs

Fresh data from Bank of New York Mellon show DR trading turnover increased by 85% in the first half of this year, despite thin issuance volumes.
Equity markets across the globe may have been under pressure for most of the first six months of 2008, but the turnover of depositary receipts increased by 85% year-on-year to $2.4 trillion, according to fresh data published by Bank of New York Mellon. And with US-listed DRs (known as American depositary receipts) accounting for 86% of the total turnover, this suggests US investors are still keen on buying non-US paper.

This should be encouraging for the two Chinese companies that are currently in the market trying to raise fresh funds from a US IPO (see separate story on China Distance Education Holdings) and the other listing hopefuls that are still waiting in the wings in the hope of a more stable market before they take the plunge.

Chinese search engine provider Baidu.com was one of the most actively traded ADRs, highlighting the level of interest in Asian companies. Other active ADRs included BrazilÆs Petrobras and CVRD, FinlandÆs Nokia and MexicoÆs America Movil.

In line with most other markets, the number of new and follow-on DR issues by non-US companies declined significantly though. As of June, issuers from 14 countries had completed 27 DR issues, raising almost $9 billion. However, this was 48% lower than the same period last year in volume terms and 65% lower in valuation terms. China topped the list in terms of number of offerings with six, followed by five from India and four from the Ukraine. There were two issues by Brazilian companies and one Russian offer.

ôWe continued to see DR offerings based on commodity-driven growth in some of the Bric (Brazil, Russia, India and China) countries and needs-based offerings by financial issuers in Europe,ö says Michael Cole-Fontayn, CEO of Bank of New York MellonÆs DR division. ôVolatility and price declines dominated conditions in the global equity markets as investors continued to use DRs as their cross-border investment vehicle. This led to a significant increase in DR trading volume,ö he adds.

However, active trading aside, the overall performance of DRs, as measured by the Bank of New York Composite ADR index, still declined. The index fell 11.5% in the first half and 9.1% in the 12 months to June 30. As of that date the index had 375 constituents and a free-float market capitalisation of $6.2 trillion.

Among the sub-indices, the only regional index to register a gain for the first half was the Latin America ADR index, which was up 8.2% in the six-month period and 31.8% in the past 12 months. Its performance was driven by high-flying stocks like ChileÆs Quimica, which was the best performing ADR constituent across all regions with a 163% gain, and ArgentinaÆs Tenaris, which was up 66%.

The Asia ADR index fell 10% in the first half and 10.4% in the 12 months to June. On an individual country basis, the indices tracking the performance of ADRs from Australia, Denmark, Norway and Taiwan were all up in the first half.

Bank of New York Mellon is one of the four global DR banks and acts as depositary for more than 1,300 ADR and global depositary receipt programmes. According to its own data, it acted for 89% of DR capital raising transactions in the first half, representing 83% of the transaction value.
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