ARBOR OUTLOOK: Investing in U.S. companies to achieve global aims

Published: Thursday, September 19, 2013 at 03:34 PM.

  Investors occasionally inquire about the efficacy of investing in foreign companies. Communications, disclosure and transparency often fall far short of acceptable standards. And corruption can be disconcerting.

U.S. investors who invest in Chinese owned companies, for instance, may do so at significant risk, as regulatory bodies there are weak and often corrupted. 

“A crackdown on corruption in China has intensified in recent weeks,” according to an article in the New York Times. “Last week, four senior managers of C.N.P.C. (China National Petroleum Company) and its subsidiary, PetroChina, were removed from their positions and placed under investigation on suspicion of… corruption, bribe-taking or embezzlement … The investigation appeared to escalate … when Jiang Jiemin, director of the powerful commission that oversees the government’s stakes in the largest nonfinancial state companies in China, was also cited on suspicion of ‘grave violations of discipline,’ according to a statement on the website of the party’s Central Commission for Discipline Inspection. Mr. Jiang had been general manager, then chairman of C.N.P.C. until March.”

Investing in other countries can also prove problematic.  “When it comes to corruption, Venezuela has long languished near the bottom …,” says The Economist Magazine.  “According to the latest index of perceptions of corruption compiled each year by Transparency International, a Berlin-based watchdog, only eight out of the list of 176 countries were seen as more graft-ridden … Last year Cadivi (government’s foreign exchange regulator) handled over $59 billion … But Jorge Girodani, the (Venezuelan) planning minister … say(s) up to a third of that could have been funneled to fake companies.”

And long awaited reforms and transparency in business in India are apparently moving at a snail’s pace, according to another Economist article entitled “Made Outside India.”

So how do investors take advantage of owning securities whose companies sell successfully to emerging market nations?  Simple. They buy securities of U.S.-owned companies that successfully market their products and services in foreign countries. In so doing, investors completely sidestep ineffective or corrupt politics. 

And they take advantage of important emerging market demographics. The median age in India is under 28. There are many more young adults there in their spending years than in, say, Germany, where the median age is over 45, thanks to demographics and a much greater overall population. Also, a burgeoning middle class is developing daily in emerging market nations around the globe.

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