A reader asked me to touch on the risks associated with buying foreign stocks that trade on the pink sheets.Foreign ordinaries and ADRs can both trade on the pinks. You know it is an ord if the ticker ends in F and you know it is an ADR if the ticker ends in Y.
So here is a screen shot from Yahoo Finance for the pink sheet traded ordinary shares of Auckland International Airport. This is pretty typical of the how little information you might find. What can anyone do with that? Well it does verify the symbol anyway.
Anyone interested in this stock would need to do a little detective work. One source that might provide more info, but not always, is pinksheet.com. Today there is no extra info for ACKDF.
For quote info you could look up the symbol for the stock on the local market which in this example is AIA.NZ and Yahoo usually has that. AIA.NZ closed overnight with an offer of NZ$2.18, multiplied by Yahoo's quote for NZDUSD=X of 0.7778 works out to $1.68 in US dollars as a possible price to get an execution depending on your broker.
Realistically $1.68 won't get it done. In most instances you need to pad your limit order by some amount. It seems that the amount needed for padding varies with no concrete guideline.
It is also possible your brokerage firm can get you a quote where you can get an order done. I would add that Schwab charges an astronomical fee/commission to retail investors to get this sort of business done.
So the risks, and I'll say issues is a better word, that should come through from above include lack of good quote information, unfriendly market dynamics, the obvious need for a limit order and very little chance of a short term trade (for those who are inclined this way).
Additionally most company websites have information available that you would expect to find on the website for a US company so studying the fundamental story is not much different but some companies don't have much information on their sites as was the case with Climate Exchange (small personal holding) as I mentioned this morning.
Above I outlined the currency work that needs to be done with ordinary shares, the ones whose tickers end in F, but with ADRs, the ones ending in Y, do not require currency conversion.
This whole thing clearly is a step up in time commitment and complexity, hopefully no one took my comments as otherwise, but people inclined to spend the time needed, or even a little more time than they currently do because one stock is compelling, then why not?
I just turned in an article to TSCM about the Portugal ETF. One of the names in the fund is Brisa (BRSAY) which is a toll road. I don't think it is a monumental stretch that a portfolio with a blend of ETFs and a few stocks could make room and time for one stock in a theme no easily isolated otherwise. This is not right for everyone but neither is it wrong for everyone either.
To be clear, ACKDF and BRSAY are just examples, I do not own either one nor am I a buyer anytime soon, if ever.
8 comments:
I'd suggest people get an account with Interactive Brokers and you can buy stocks on most markets for low commissions, usually lower than discount brokers in those markets. For example for Australia they charge 0.08% while CommSec the biggest discount broker in Australia charge 0.11% for orders over $A20k and $19.95 for orders under $A20k. I was charged E4 for a European trade - seems to be their minimum commission there. And of course their rates on US stocks are super cheap.
Disclosure: shareholder and customer of IBKR :)
Roger and blog readers/commenters. I am the reader who asked about trading foreign stock on the pink sheets. Thank you, Roger, for your response and examples. The lack of information and reliance on somewhat unregulated market makers is quite a phychological barrier. Seems like a global internet-tradeable account through E-Trade (or any other brokerage that offers a similar service) may be a better solution for accessing foreign ordinaries. Anyone willing to share experiences with a global internet-tradeable brokerage account (real-time execution vs only during times when US markets are open, total costs, liquidity, etc.)? Thanks, JCarr
Thank you, mOOm, for the recommendation. I will investigate Interactive Brokers. JCarr
Another source for "basic" price/volume info is bigcharts.com (hat tip to Fidelity's International Trading dept.). I had an "issue" with Enel Spa, which used to trade as an ADR on the big board (EN), then de-listed to trade on the NASDAQ (ENSTY)...then "disappeared". Since I owned it, needless to say, I was "interested" in what was happening, *G*.
jan
roger, i may be mis-reading your comment, but earlier this year i bought a canadian oil company through schwab that trades in toronto but only on the pink sheets in the us; i paid only $9.95 in commissions to buy the stock ending in an f. i did not try to get a toronto quote through schwab but did use bigcharts.com (as jan mentioned in the prior post) to get a quote on the toronto exchange to calibrate an offer; one should be aware that bigcharts quotes are delayed 15 minutes.
additionally, foreign stocks trading in the us systematically sometimes trade with discounts or premiums to their currency converted value, including at least nasdaq listed stocks. back in 2005 and early 2006 the shares of india's infosys on nasdaq consistently traded at a premium of more than 5% over its currency converted value in india; some of the brokers i dealt with back then explained that constraints on the shares available for conversion to adrs in the us created a scarcity value for the us adrs (and us institutional investors supposedly did not want to custody the shares in india at the time--this may have changed). i have no idea of whether that was the true explanation, but it sounded plausible. by the way, that premium tended to evaporate in early 2006 without any real explanation either. i retired in mid 2006 and have not kept track of this premium or discounts for infosys, but thought you and your readers might want to know that sometimes other exogenous factors can impact the us price of foreign shares beyond just currency and the home market price.
i should have included "except for Canada." The extra expense ranges from zero in Canada to a lot in the antipodes with Europe in between and I do not know how much more latam is.
everything Schwab told you, ok, but other firms get trades done without the added expense.
Rog,
As a former ex-pat in NZ, I can't help but comment when the example includes Aotearoa (Maori name of NZ).
Your use of the Auckland International Airport is particularly apt for illustrating the huge information asymmetry when considering foreign investment.
The public authorities (in fact, the Crown, acting through the NZ government) are frequently mucking about in a variety of privatisation/de-privatisation (UK spelling) schemes. Before investing on the basis of merely reviewing the pink sheets and scanning a disclosure document, the diligence should include checking the local papers for stories, and domestic price quotes (including volume activities). (In NZ, The Dominion operates out of Wellington - the capital - while the Herald operates out of Auckland and provides deeper business coverage.) Local politics, and historical local precedent re: gov't involvement won't necessarily show up in international business reviews, but could have significant effect on the success of the investment.
Also, different jurisdictions sometimes mean completely different securities regulation - so you can't always depend on "US-like" rules for disclosing material risks.
Simple example: New Zealand permitted the sale of equity interests in CDOs to mums and dads (retail investors). You can imagine how some of those turned out.
Rick
Rick, great insight, thank you sharing this.
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