Transparency Will Need To Go Global

The tremendous growth of the Chinese economy and stock market has many wondering how long it will take before China once again regains it spot as the top economy (The Business Insider). When looking at purchasing power parity, some analysts are expecting that China will regain the crown as the top economy by 2015, after 125 years of the U.S. holding the number one spot. Yet for China and any other global market or economy to be a long-term destination for investment, further transparency and disclosure will no doubt be necessary. Just yesterday I discussed some recent academic research that found investors tend to trade foreign equities more often than their domestic counterparts (Bull Bear Trader). In short, the authors of the study found that the level of trading is higher for stocks in markets for which there are weaker investor protections, or for markets that have lower disclosure standards. The portfolio turnover or churn rate was higher as the quality of information and level of familiarity decreased.

This information appears to not be lost on some international markets. Wealth Briefing Asia reports that as investor look across the globe for alternative investments, they will demand more in-depth information on investment products in the wake of the recent financial crisis. To meet this need, services are already being offered to help investors discover transparent managers, and regulatory bodies are increasing requirements for transparency within various markets. Both the demand and the will seem to be in place, yet more will have to be done, with such transparency continuing down to the company level as investor seek assurances regarding future investments. This is happening in Japan, where after two decades of poor returns, Japanese investors are beginning to challenge management teams that are not delivering for shareholders (Financial Times).

Therefore, as investors continue to look for alternative investments and ways to diversify globally, international markets will need to increase transparency as the economic links between the U.S., China, Japan, Europe, Brazil, India, and Russia, among others, continue to grow. In doing so, markets will be able to lower equity turnover rates (Bull Bear Trader), thereby reducing volatility and allowing them to attract the type of long-term investment and capital necessary to grow their markets. Whether China continues to rises to the level of market leadership is still to be seen, but even if the U.S. retains it top position, a more transparent market in China and elsewhere will help all markets given that full decoupling has not happen, and will most likely never fully occur in the new global market place.