Depositary receipts hit record levels of liquidity in 2007 and will continue to be strong internationally in 2008, according to a JPMorgan report on the global depositary receipt marketplace.
JPMorgan’s Depositary Receipts (DR) group said that 2007 saw record levels with DR trading volumes increasing 55% to 85 billion shares and values increasing 92% to $3.1 trillion, according to JPMorgan’s DR ‘Year in Review 2007’ report.
The rise in DR activity also triggered a new peak in capital raised in DR form, reaching $53.2 billion, as compared to $42.6 billion in 2006 and $21.6 billion in 2005.
“The figures for 2007 make it clear that companies continue to rely on depositary receipts to increase trading liquidity, diversify their shareholder bases, tap new capital markets and raise their corporate profiles abroad. Now, 80 years after we invented the American Depositary Receipt, companies want us to provide an even broader suite of products and services worldwide,” says Claudine Gallagher, global head, JPMorgan’s DR business.
One of the strongest trends has been the shift to global depositary receipts (GDRs) that typically list in London or Luxembourg. In 2007, GDRs represented 74% of IPO capital raisings, while New York-listed ADRs represented 26% of the market.
Not withstanding the shift to GDRs, capital raising for ADRs was at record levels this year. US institutions increased their investments in DRs to more than $850 billion, up from about $600 billion during 2006 and more than doubling their activity since 2004, when it was only $400 billion.
“The centre of gravity in the DR market continues to shift South and East, with a focus on Brazil, Russian, India and China, the ‘BRIC’ countries. We should also see more interest from emerging markets such as Pakistan and Vietnam. In addition, we expect to see a rise in local DRs, which are designed to create liquidity in the home market in countries such as Brazil and Russia,” adds Gallagher.
DR market trends were also reflected in the performance in JPMorgan’s new DR index program. The set of 12 indexes, which were launched in March 2007, showed strong performance year to date with the majority outperforming industry benchmarks.
JPMorgan recently celebrated the 80th anniversary of the ADR, having created and launched the first-ever ADR on April 29, 1927 for British retailer Selfridges. Today, more than 1,800 companies from over 75 countries sponsor over 2,200 DR programs in the form of ADRs that list on U.S. exchanges or GDRs, which typically list in London or Luxembourg.