Increasingly, global investment focus is shifting from developed economies to emerging markets. It is very likely that developed economies will go through a long period of sluggish growth once they recover from the current recession, saddled with high levels of public, private and household debt, high taxes, low consumption and high unemployment. Emerging markets, on the other hand, do not share many of these burdens and show solid growth potential.

The major U.S. exchanges remain the most liquid markets for foreign companies, representing 85% of all company stock traded on secondary exchanges, outside home countries, as measured by market capitalization.

ADRs

What are ADRs?

American Depositary Receipts represent units of ownership of foreign companies that are listed on U.S. exchanges and traded in U.S. dollars. These stocks cost as much to trade to U.S. investors as any other U.S. stock and present an inexpensive means of diversifying one's portfolio internationally. ADR companies are also subjected to similar reporting standards as U.S. public companies, giving investors access to more accurate information than would have been available on some emerging market exchanges.

ADRs are also convenient to those more risk-adverse pension and mutual funds that restrict their managers from investing overseas or into illiquid markets.

There are 3 levels for ADR companies:

Level 1: Most ADRs fall into this category that can only be traded OTC. Level 1 ADRs require minimal SEC reporting requirements as they are not obligated to file quarterly and annual statements with the SEC in U.S. GAAP accounting format. These companies must however clearly display their statements in English on the investor relations section of their websites, and in their native reporting format.

Level 2: This level allows foreign companies to be listed on US exchanges, but requires filing of annual reports in US GAAP format with the SEC. Individual exchanges may also have additional reporting requirements.

Level 3: This level imposes similar requirements on foreign companies as the SEC does on U.S. companies, and guarantees to the investor the highest degree of transparency for an ADR company. Level 3 ADR shares are removed from home markets and deposited in the U.S. for trading, and can also be issued directly in U.S. markets in order to raise capital.

Investing globally offers portfolio diversification and allows the investor to take advantage of increasing globalisation.