With the globalization of business and investing, investor relations should also take a global view. So began the Investor Relations magazine Executive Conferencing Series with MCI WorldCom on Friday, November 13. Despite the date, the technology linking panelists in New York, Washington DC, London and Amsterdam worked fine.
Look at Investor Relations survey results: in our 1997 poll of IROs, we found significant levels of foreign ownership, especially in Europe and Latin America with the US trailing at 13 percent. Over half of those surveyed said they had plans to increase foreign ownership.
In this year’s survey (October, 1998), we found a surprising consistency of IR commitment worldwide, with continental Europe and Asia closely trailing the UK and the US. Over the next year there’s a focus by non-US companies on non-domestic IR, especially targeting continental Europe.
Transition time
With the euro all but upon us, European investors are in transition. ‘Most are changing from country to sectoral coverage,’ remarks Frans Bedaux, chairman of the International Investor Relations Federation and senior VP of investor relations at ABN-Amro. ‘We will see a shift from fixed-income into equities and, with one currency, there will be a rapid increase into others, primarily the US and Asia Pacific.’
‘Euroland’ has 290 mn people, larger than the US; and a GDP almost the same size. Equity and bond markets 60 and 80 percent the size of the US. ‘There’s a large scope for American companies to sell more equities into Europe,’ Bedaux points out.
Richard Carpenter, Investor Relations international editor, says European IROs have US ones beat on non-domestic IR. Geographical diversification is a key tenet of ‘IR in a shrinking world,’ he says. ‘It takes time, it takes money, it takes effort, but it can really pay off in the long run.’
He sees a massive increase in European pension funds and savings taking shape over the next few years. France, for example, is toying with private pension fund legislation, while institutions are moving to Germany to take advantage of pension fund growth. ‘Overall it means more money available in Europe.’ And Europe can surprise, Carpenter adds: Stockholm, at around $145 bn in equities under management, is a larger equity center than Stamford.
‘We’re truly in a global marketplace today,’ confirms Lou Thompson, president and CEO of Niri. ‘Overnight developments on European and Asian markets are often looked at now as a precursor to what’s going to happen on the US market during the day.’
Thompson recently attended the Fortune 500 CEO forum and noted the key topics of discussion: Are we going to have a recession next year? What is the impact of the Asian crisis? And how are you managing earnings expectations in today’s volatile market?
He reminded the 100 conference participants that there’s still an awful lot of oomph left in the world’s largest capital pool. From 1950 to 1995, US equity mutual funds took in $100 bn. In 1997 alone, the net inflow was $280 bn. ‘Perhaps that growth along with the bull market means a lot of Niri members here not looking as globally as they might.’ Meanwhile, viewing US equities as overvalued, European investors poured into Asian markets. ‘When they got burned on those investments, they started looking to US companies.’ Thompson adds that while the European investor seems to be a longer-term holder, ‘It also takes more time and effort to court that investor.’ He points out that most Europeans seek US companies with a product visibility in Europe.
Bedaux notes that European investors are turning slightly toward a shorter-term US style, ‘forcing a lot of European companies to consider publishing quarterly rather than semi-annually. Companies have to adapt.’
For the near future, the challenge of IR in volatile markets overshadows any push to European capital for US IROs, says Thompson. ‘You’ve got to have bulletproof earnings, and a story without earnings doesn’t sell. If you’re a smaller company with a great story but no earnings to go with it, that is a very hard sell.’
All the panelists glowingly welcomed international accounting standards: improved transparency on a global basis will give investors a much higher level of comfort. ‘The US capital markets are the finest in the world because of a high level of transparency; the transparency of IAS is going to help globalization a great deal,’ Thompson concludes.
