US investor sentiment shifts towards emerging Asia ADRs

Increased spread pick-up on emerging Asia ADRs sees increase in US money coming into the region.

Although 2001 was not a good vintage for equity markets everywhere, especially coming off the back of a record year in 2000, new figures released by Citibank indicate that investors in the US are shifting their attention to emerging Asia American Depositary Receipts (ADRs).

This trend became particularly noticeable after September 11, when the spread pick up on ADRs out of emerging Asia (China, India, Indonesia, Korea, Malaysia, Pakistan, Philippines, Sri Lanka, Thailand and Taiwan) against those from developed countries increased by a significant margin.

In the 49 trading days prior to 9/11, the spread between the MSCI emerging Asia indices and S&P 500 index was 3.83%. During the 52 days after that, the figure rose to 11.07%. At the same time, the spreads between the MSCI developed market indices and the S&P 500 actually fell by 2.71%.

As a consequence of these changes, the purchasing of emerging Asia ADRs by US investors increased by 68%, while the amount of ADRs sold by the same investors fell by 70%.

This, according to Kurt Schneiber, global managing director of depositary receipt services at Citibank, is not just a short-term situation.

"While overall ADR activity has been impacted by the global slowdown, investor behavior since September 11 shows reason to be optimistic about emerging markets, particularly Asia," he comments. "This underscores the long-term trend of US investors increasing their exposure to non-US equities through a wide variety of global events and conditions."

The story for ADR borrowers in developed Asia (Australia, Hong Kong, Japan, New Zealand and Singapore) is not so positive. For the 49 days prior to 9/11, the spread between the MSCI developed Asia indices and the S&P 500 was -1.36%. This went to -6.13% for the 52 days that followed.

Furthermore, although purchases of developed Asia ADRs from US buyers rose by 22% after 9/11, this was offset by an increase of 40% in US investors selling developed Asia ADRs.

The Citibank figures point to just how bad a year 2001 was in the global equity markets. While the overall volume traded rose 4% to 30.4 billion shares, trading volume fell by 38% to $685 billion.

Nevertheless, two Taiwanese companies figured in the top 10 of ADRs by trading volume: Taiwan Semiconductor Manufacturing Company (TSMC) was fourth with 935 million shares, with United Microelectronics Corp (UMC) in ninth place with 551 million shares traded.

Emerging Asia also accounted for over half of all non-US ADRs issued in 2001, with $4.8 billion out of a total of $8.4 billion. Korea Telecom and Hynix Semiconductor topped the table of individual companies raising capital through ADRs last year.