International News 31/08 – Multinationals give a lift

Investors can still take part in global markets by investing in their local multinational stocks, says Merrill Lynch Investment Managers head of investment strategy and research Ewen Cameron-Watt.

"I can invest in a large number of multinationals listed on the ASX such as News Corp, CSL or BHP, yet the investor thinks they are investing in Australian stocks," he says.

"In London, I can invest in Shell or Unilever, in Finland Nokia, or in the US, a company like Microsoft. All are multinationals with global business."

Cameron-Watt says there is still an investing strategy for local stock markets.

"The local markets have a role of supplying capital to small to medium-sized companies, and as an exit strategy for venture capital investments," he says.

Multinationals are now an asset class in their own right, not linked to any exchange. "A local listing for a multinational is like a flag of convenience in shipping," Cameron-Watt says.

Globalisation of markets has been in the news recently with Australian miner North being bid for by an UK and South African multinationals (Rio Tinto and Anglo) while pressure on the bidders came from the Japanese customers of North.

Investors in multinationals should still pay attention to the sector and country mix of a portfolio, Cameron-Watt says. At Merrill Lynch, the investment strategy has about 60 per cent of the returns from sector-specific investments and the rest from country-specific selections.

The recent rise in Australian resources stocks was due to the multinational Anglo looking for buying opportunities outside its South African base, he says.

"Multinationals have outperformed other indexes in the past five years because of the economies of scale they are achieving," Cameron-Watt says.

"However, multinationals can become overvalued despite outperforming the local stocks."

Vanguard stays true

US mutual fund The Vanguard Group has brushed-off industry pressure due to increasing number of its competitors selling to public shareholders or larger companies, agreeing to remain true to label.

The company says the $580 billion group's mutual ownership structure is key to serving clients by keeping costs down and discouraging active traders.

Under Vanguard's ownership structure, unique for mutual fund companies, the investors who hold shares in its mutual funds are the owners.

Currying favour

Leading international insurance companies are bidding for a share of the world's largest life insurance market, India.

Britain's Prudential and US company Allstate International Insurance Holding are seeking life insurance licences in India in a bid to capture a share of India's market.

The applications were made earlier this month through joint ventures by Indian insurer ICICI with Prudential and Allstate.

NASD fines E*Trade

American online trading group, E*Trade Securities has been fined US$20,000 for failing to report its short-interest positions for a 28-month period.

The American regulatory bidy NASD Regulation also found E*Trade had failed to establish, maintain and enforce written supervisory procedures designed to ensure compliance with the short interest reporting rule.

The NASD rules require each member firm to maintain in all its customer and proprietary accounts a record of total short positions in those securities listed on the Nasdaq stock exchange.

The failure of E*Trade to report its short interest positions caused inaccurate market data to be disseminated to the investing public, said the association.

Goldman Sachs Group

Goldman Sachs Group has fallen from last year's top spot in advising on the Internet to number eight this year, leaving leadership in the fast-growing market to Morgan Stanley Dean Witter & Co and Chase Manhattan.

The size of the average transaction of internet companies has more than doubled to $1.1 billion from $448 million last year as banks added people and capital.

Goldman slipped because it missed getting a piece of the three biggest transactions, which accounted for about two-thirds of the total.

These included VeriSign's purchase of Network Solutions; Terra Networks SA's agreement to buy Lycos Inc, and Phone.Com Inc's agreement with Software.Com.