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ADR Volume Lifts Market

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The million dollar question in financial markets today:  are we at the so-called Great Rotation, where investors prefer stock funds over bond funds?


While the rising Dow may be a happy sign for equities, there are different schools of thought as to its meaning. One says that a more likely explanation for inflows into stock funds is that investors moved cash into higher yielding stocks as well as bonds - basically an overflow of money is coming to stocks as opposed to a shift in strategy.


But where is the cash coming from? A couple of places: special dividends paid out late last year in anticipation of higher taxes on dividend income this year, cash parked as a hedge against uncertainties created by political bickering over the US government’s budget, and cash from reducing alternative investments.


And where is it going? I took a look at international companies listed on the NYSE, where aggregate trading trended down in the first 8 months in 2012, but jumped up in September as the IPO window briefly burst open.  Since October, trading volumes have since risen for three straight months, and averaged almost 564 million shares per day in January of this year. Leading the rise in trading activity were companies based in the Europe Middle East & Africa and in the Asia Pacific.


Standouts included Finnish mobile-phone maker, Nokia, whose average daily volumes (ADV) reached 64 million during 3-months ended January 30, 2013, up 106%  over same period 2012, and Japan's consumer electronics company, Sony, whose ADV surpassed  3.4 million, up 173%. Both Nokia and Sony list Depositary Receipts (DRs) - a security that represents ownership of equity shares in a foreign company.  When listed in the US, DRs are called American Depositary Receipts or ADRs; the vast majority of DRs listed outside the US are called Global Depositary Receipts or GDRs.


Indeed, in the global competition for liquidity in DRs, US markets continued to dominate, and  NYSE-listed companies continued to top US trading in ADRs. The US accounted for over 80% of the total value of global DR trading, and NYSE-listed companies accounted for 83.4% of ADR trading in the US.


Each of the top six most actively traded ADRs is NYSE-listed, with four from Latin America and two from Europe:



  1. Nokia/Finland

  2. Vale/Brazil

  3. Petrobras/Brazil

  4. Alcatel-Lucent/France

  5. Cemex /Mexico

  6. Itau Unibanco/Brazil.  


An ideal scenario for 2013 would be for investor activity to increase and raise liquidity worldwide. However, the number and thickness of wallets in the US enhances this market’s potential to increase liquidity for domestic and foreign companies. Let the Great Rotation begin!


See interview of Liz Ann Sonders, Chief Investment Strategist, Charles Schwab, on the Great Rotation.   


For those interested in learning more about ADRs, here are links to the four DR banks:


Citi  http://wwss.citissb.com/adr/common/linkpage.asp?linkFormat=M&pageId=3&subPageId=38


BNY Mellon ADRs http://www.adrbnymellon.com


Deutsche Bank https://www.adr.db.com/


JP Morgan ADRs - https://www.adr.com/


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