BNY Mellon says that American and global depositary receipts (DRs) proved their value as a preferred vehicle for portfolio diversification and cross-border investing in 2010, surging an estimated 30% in trading value and 11% in trading volume. Moreover, BNY Mellon’s Depositary Receipts business estimates that DR trading volume will rise 11% to 150 billion DRs in 2010, an all-time high.
An estimated $3.5 trillion of DRs are expected to trade on U.S. and non-U.S. markets and exchanges by year-end, a 30% increase over 2009 and second highest total ever, according to a press release, while new DR programs and capital raisings are expected to finish above 2009 levels, though below historical highs of 2007, according to the firm.
A depositary receipt (DR) is a type of negotiable financial security that is traded on a local stock exchange but represents a security, usually in the form of equity, that is issued by a foreign publicly listed company.
The growing prominence of emerging markets can be seen in a continued shift in the flow of capital, according to BNY Mellon, which notes that, according to fund tracking service provider EPFR Global, from January 1 to October 31, 2010, aggregate fund flows to emerging markets totaled $80 billion. During the same period, there was a total outflow of $118 billion from all developed market equity funds, including $82 billion from U.S. equity funds alone.
“Investors are using DRs as an easy, effective way to diversify their portfolio and gain exposure to equities outside their local market,” said Michael Cole-Fontayn, chief executive officer of BNY Mellon’s Depositary Receipts business. “The DR industry saw solid growth in 2010 in nearly every key metric – more than 150 new sponsored DR programs were created, and we expect record trading volume by year-end.”
Other industry highlights from 2010 cited by BNY Mellon:
- 27 of the 59 BNY Mellon ADR country and regional indices posted higher returns through November, with the indices for Argentina, Denmark and Colombia each returning more than 50% year-to-date
- The world’s largest DR program as measured by value was Brazil’s Vale, with more than $46 billion worth of DRs outstanding
- As of November 30, 2010, investors were able to select from a record 3,289 sponsored and unsponsored DR programs for companies from 78 countries
- DR issuers from emerging markets continue to dominate many DR market metrics, accounting for 96% of year-to-date DR capital raising transactions, 87% of DR capital raised, 57% of both DR trading value and volume, and 69% of new sponsored DR programs
- DR capital raisings through November totaled $24.1 billion, compared to the 2009 mark of $32 billion. Eighty-six percent of offerings occurred in the BRIC nations as market conditions continue to improve
- Of the 77 DR capital raisings by BRIC companies, 69 transactions totaling $6.6 billion were from Chinese and Indian companies, accounting for 76% of global transactions and 27% of the total value. The largest DR capital-raising transaction year-to-date was from Brazil’s Petroleo Brasileiro, which raised more than $10 billion.
Through November, 200 new sponsored and unsponsored DR programs for companies from 40 countries were established. Of 2010’s 133 new sponsored DR programs, 63 were listed on stock exchanges -- 30 in the U.S., 33 in Europe, and one in Asia. 56 issuers chose to trade their new sponsored DRs on the U.S. OTC market, with three issuers using the OTCQX platform. The remaining new sponsored programs trade on various other platforms. Indian issuers established the highest number of new sponsored programs with a total of 30, closely followed by Chinese issuers at 29.
In aggregate, investors were able to select from a record 3,289 sponsored and unsponsored DR programs for companies from 78 countries at the end of November 2010, according to BNY Mellon. DR program availability has increased nearly 5% since December 2009 as the vast majority of the world’s largest companies now have DRs available to investors, according to the firm.