Diversification with American Depository Receipts - 2
By Saghir Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities)
While ADRs have been in existence since the 1920’s, they have experienced rapid growth and increased popularity in recent years. Investors have sought participation in the integration of the European Community, the transition of Eastern bloc countries to market economics ,the privatization of world-class companies and rapid growth in the Pacific Rim and Latin America - all through the ADR market.
At the same time, foreign companies have shown greater interest in participating in the ADR market because it has enabled them to increase their visibility and global presence, raise capital, broaden and diversity their shareholders base, generate support for their products and services in the US and enhance employee benefit and stock options plan. Today, more than 1,400ADRs are available in the US.
Please keep in mind that investing abroad carries special risks. Many foreign markets are not as liquid as the US markets, and political risk and currency risk must be considered. Although ADRs are traded in US dollars, their prices are indirectly influenced by currency fluctuation. In general, the weaker the performance of the US dollar versus the currency of the ADRs home country, the better the net investment result (and vice versa). International investing should not be considered a complete investment program.
As markets worldwide continue to develop, foreign stocks particularly in the form of ADRs, are likely to play an increasingly important role in the investment portfolios. ADRs may help suitable investors capitalize on the opportunities present by a changing global marketplace. As always, please remember that the stock market, whether here or abroad, is very risky and only the money that can afford to be lost should be invested.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
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