A globally diverse investment world

Frank Hemsley - Tue 13 Jun, 2006

...The investment world is getting more globally diverse by the day. That is good news. Worldwide expansion spells big profits for smart investors. And in the UK and Europe, we could be on the receiving end of a lot of foreign money...I think were going to see an opportunity in the months and years ahead as US companies and investors alike continue to head to our part of the world for profit opportunities...

The investment world is getting more globally diverse by the day. That is good news. Worldwide expansion spells big profits for smart investors. And in the UK and Europe, we could be on the receiving end of a lot of foreign money.

You may well have heard of the Sarbanes-Oxley Act (SOX) created in 2002 in the wake of the Enron scandal. The legislation, effective in the US, makes it nearly impossible for shady American executives to steal millions of dollars of investor equity. But it also makes complying with the laws extremely expensive for small companies with a fresh product.

The added burden created by SOX has forced a lot of new entrants into the equities market to look to Europe and Asia where regulations are much less stringent than in the States.  

For companies struggling to find enough money to fund product development, let alone pay hundreds of thousand or millions in fees to comply with SOX, foreign markets are the only answer.

Some of the biggest and most successful IPOs of the last few years have not taken place on American soil. The majority of them have occurred in Europe. Plenty have happened right here in London on the AIM market. And as American regulators tighten the straps on its securities markets, more and more companies will look to Europe.

I think we’re going to see an opportunity in the months and years ahead as US companies and investors alike continue to head to our part of the world for profit opportunities.

And due to a recent mega-merger, I think it could happen sooner rather than later.

You see, for many American investors, investing in foreign markets has never been a favourable notion. Not only can exchange costs be overly expensive, merely finding a broker that deals with foreign markets can be tough.  

Fortunately, thanks to the New York Stock Exchange's successful $10 billion merger with the Euronext exchange, American investors are going to have a better shot at making hefty profits in the UK and continental European markets.
 
The biggest benefit to American investors is the wide variety of investments the world's first global exchange will offer. They will have a shot at shares, options, commodities, futures and corporate bonds from two continents up to 12 hours a day.

The merger will not affect the strong trend of American companies looking to Europe to go public. Companies will still have the option to be listed on any number of Euronext's four bourses in Amsterdam, Paris, Brussels and Lisbon.  

Each "mini-exchange" requires listing companies to meet the federal requirements of the listing country, no matter where the company is headquartered. The American SEC has little, if any, jurisdiction.

This setup offers the best of both worlds: American companies can look to Europe to avoid costly SOX expenses, and American investors have cheap and easy access to some great profit opportunities. I expect this opening to be great news for European markets as a flood of US money comes in.

Once the new exchange is up and running, it will create the world's premier listing venue. The combined market capitalization of the companies listed will top an estimated $27 trillion.  

Finally, inexpensive electronic trading has become very popular. It is one of the highlights of the American Nasdaq exchange. After its merger with Euronext, the NYSE will have access to one of the best electronic platforms in the world.

Not only is this deal going to offer better access to European markets for Americans, it will also lower trading costs and increase trading hours. This is a monumental move in the world of investing.

We are going global...


Regards,

Frank Hemsley
for The Daily Reckoning