Recently stock markets have become a global industry. Investors no longer only buy domestic shares from their local stock markets. Instead they can purchase shares from any stock exchange at the click of a button or a simple phone call. This is great news for the companies who are able to raise capital from a wider population and also for investors who can potentially gain higher returns through greater choice of investments.
It is only in the last 30 years that purchasing shares from international markets has started. Currently the London Stock Exchange has the highest value of foreign shares whereas New York has the highest value of domestic shares (Arnold, 2008). Recently different stock exchanges have merged to enable investors to easily trade shares from different areas. For example, the NYSE and Euronet merged together in 2007. Euronet consisted of Amsterdam, Brussels, Paris and Portugal and has created a cross border exchange which increases liquidity and encourages investments. The merger has had little impact due to the time differences of the market so far, although there are potential for merges to create opportunities and increase access to investors.
The internationalisation of stock exchanges mainly brings benefits to investors and companies. Investors gain through being able to invest in less riskier companies as well as searching for higher returns depending on the risk appetite of the investor. Companies benefit through access to capital and attracting more investment. The local economies also benefit through attracting foreign savings which are used to benefit them.
For example, when Facebook shares are available to buy, people in the UK will be able to invest even though they will be listed in the US. This is great news for Facebook as they will be able to gain maximum investments through the international markets. There is a risk to investors regarding Facebook shares and if they are going to be a good long term investment, which is what they require through shareholder wealth maximisation theory. Many recent articles have been discussing if Facebook shares will provide returns or if they are too hyped and if Facebook is performing as well as expected.
The one of the main problems with the listing is the shift in customer base. Previously people like me who signed up to use Facebook were the customers. Once it becomes listed in a sense we will become the product. There is already a huge amount of adverts on Facebook and this can only increase as a way for them to make money. Every time you ‘like’ something, Facebook uses this information to target adverts and the company or product are able to see who their target audience is. How long will it be before the users of Facebook no longer wish to share all this personal data and get sick of being targeted with adverts and recommendations? Personally, I feel that they already know too much about the users so, if it does continue maybe my usage of it will decrease.
When the shares finally float it could be possible that they are over valued due to the potential interest markets expect them to have. There is no doubt that currently they are the ‘fashionable’ shares to have, but are they likely to provide long term returns required by shareholders? When Google floated it did increase the share price showing that sometimes the hype is justified. LinkedIn was the ‘hot’ listing from last year and the share price doubled on day one. But today they have fallen by around a fifth of the high showing over-reaction by the market.
With the listing comes a range of new requirements and disclosures which previously Facebook have avoided and some critics feel that the growth potential may be less than anticipated. Although, there may be growth potential as the accounts from previous years are not currently available for public view, so we can not say where the revenue currently come from.
Is it possible that Facebook only works as a private company, where there are not numerous shareholders who require returns on their investments? Are the investors going to be bothered about the number of adverts placed on the site and are they even users of the site? The public offering is going to make a lot of employees at Facebook very rich quickly on paper, but are they going to be the real winners in the offering? It is something that only time will be able to tell.
It can be argued that gaining high returns on investing in stock exchanges is more luck than actual skill, due to the unpredictable nature of the industry and how events and news rapidly affects the share price. For every person who is making a gain there is someone making an equal loss. The internationalisation of stock markets has opened up the markets to new investors, and has also increased the competitiveness of the markets which has lead to the development of the finance industry. The ability for companies to gain investment from different investors around the world has lead to many companies being hugely successful. It is unknown if Facebook will join the list of successful listings or if it will become a casualty due to the nature of their business.
(Sources: BBC News, Financial Times, The Guardian, Reuters and Corporate Financial Management – Glen Arnold.)
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