INVESTING EXPLAINED: What you need to know about ADRs
In this series, we bust the jargon and explain a popular investing term or theme. Here it’s ADRs.
Another abbreviation?
What can we say? The financial services industry lives to give us more and more sets of initials and acronyms.
ADR stands for American Depositary Receipt, which is a certificate issued by a US bank representing a number of shares in a non-US company.
This system allows American investors to put money into foreign companies while avoiding currency and other risks, as well as the expenses of cross-border transactions.
ADRs are not shares, but they provide the right to buy the same number of shares that each certificate represents, as well as receive the dividends.
In safe hands: The system allows American investors to put money into foreign companies, while avoiding the currency and other risks and the expense of cross-border transactions
What’s the attraction for firms?
Companies want access to the larger capital pool and wider base of investors that the US offers, without the time and trouble involved in listing on the New York markets. Most major British companies have ADR arrangements for this reason. Many big Chinese companies, including Alibaba, Pinduoduo, and electric vehicle maker Nio, also have ADRs as they seek US cash.
The direction of these ADRs is closely watched as it is seen as an indicator of the view in the US of Chinese economic and political conditions.
Who thought up ADRs?
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