StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Short and Long-Term Returns on Overseas Market Development - Essay Example

Cite this document
Summary
The paper "Short and Long-Term Returns on Overseas Market Development " states that one should consider the net returns after allowing for various double taxation reliefs. There is generally a heavy tax burden to be paid if an investor stays put in the markets for the long term. …
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER92.5% of users find it useful
Short and Long-Term Returns on Overseas Market Development
Read Text Preview

Extract of sample "Short and Long-Term Returns on Overseas Market Development"

Short Term Returns On Overseas Market Development Are More Important Then Long Term Returns. With international trade and business reaching new peaks everyday, everyone wants a piece of the cake. Individual investors, mutual fund houses, equity managers, virtually everyone is looking for opportunities for short and long term returns. Having exhausted the moneymaking opportunities in their homelands, these fund houses are now eyeing foreign markets. Among the foreign markets, the BRIC (Brazil, Russia, India and China) countries hold a lot of promise in terms of returns on capital. The emerging markets of China, India and Indonesia are particularly attractive to foreign investors. Many of the plausible explanations for the growth in overseas investment and much of the background to the economic analysis presented here has been spurred by the growth of multinational companies. Many firms, like large oil or chemical companies, operate in industries with large economies of scale and their operations spill across national boundaries simply to be competitive. Why investment not trade Cost considerations (e.g. transport) are important in choosing whether to increase exports or invest overseas. Equally tariff barriers to trade can encourage direct investment, but non-tariff barriers are also important. Many services are not exportable in any direct sense and have to be delivered in the overseas market through direct investment. They need to respond to the changing demand considerations of overseas markets - especially where product specifications are different from the home market. This may make it sensible to locate closer to the main centres of demand, to enable easier adaptation without disruption to production in the domestic market. Other disincentives to direct trade could be that competition takes place on grounds other than price and quality of output. For example, competition in some product markets may be mainly in terms of after sales service. Most direct investment, as with trade, occurs between similar industrial countries. direct investments will take place without displacing trade. They may even encourage greater trade flows, because intermediate inputs of production will need to be exported to support the overseas plants. In this instance, as in some others, direct investment is complementary to trade. On other occasions, it may substitute for it. Another explanation for overseas investment with parallels in trade theory is a version of the "product cycle" theory. Here production initially begins in the domestic country where the product was developed, with good access to the skilled designers and technicians responsible for "inventing" the product. As the product matures, these inputs become less important and production shifts to a country with a cost advantage in the production of the now standard good. Production overseas is cheaper and goods are exported back into the domestic economy. A further explanation for firms' investment in a foreign market rather than exporting goods to it is that there are external benefits (or spillovers) from overseas investment. These are most likely to stem from location in markets which set trends in demand, or are the "centers of excellence" in terms of production techniques, design, marketing or organization. Why overseas investment The prime motivation for investment in the international market must be that the stream of earnings is expected to exceed that which could be earned in the domestic markets. This could often be attributed to lower production costs in other countries. This investment will ultimately benefit the economy as a whole. The stream of income from overseas investments changes the composition of the current account of the balance of payments. Most directly, it does so by increasing the economy's earnings from abroad. But it may also indirectly promote a net trade improvement. Portfolio Investment In portfolio investment, there is no attempt by portfolio investors to actively control the management of a firm, rather it aims to seek out and invest in pre-existing "good management". In contrast, direct investments are concerned with actively gaining a lasting influence in the operations and management of an enterprise. Why speculate overseas Portfolio investment choice suggests that investors should diversify their portfolios widely and in markets between which there is poor or negative correlation of returns. In such a situation, a crash in one market can be balanced by a boom in the other. Diversification may be possible within very large countries like the United States, where there is enough variation between regions in the domestic economy to allow risk and returns on portfolios to be traded off. But in smaller countries like the UK, economic shocks are more likely to affect the whole economy in much the same way and low or negative correlation between assets will require investment further afield in foreign markets. Benefits of investing overseas Can help survive cyclical downturns Overseas investment may help firms and their employees to survive cyclical downturns. When there is an economic slowdown in one part of the globe, there is usually an opportunity for high returns in another part of it. Improvement in Productivity Investment in overseas markets can enable firms to improve productivity by picking up foreign techniques and expertise. This , however would be beneficial only in the short term. Once the techniques and expertise are mastered, there is no reason why the firm should be invested overseas. It can benefit more by way of short term returns than long term returns. Economies of Scale Investment in foreign markets benefit from a variety of economies of scale and, far from exporting jobs, may require increased employment in some managerial roles. Furthermore, where exports are complementary to investments, outward investment can support increased UK export production. Higher Returns And finally, as portfolio theories suggest, there are benefits to diversification abroad, both for portfolio investment and also direct investment. High returns to portfolio investment bring wide benefits to the UK population by increasing the future value of pensions and other savings and reducing the costs of insurance. Short Term Returns as Compared to Long Term Returns While calculating the returns from overseas markets, one must take into consideration the total returns in domestic currency terms. The advantages of short term returns as compared to long term returns would be : 1. Fluctuation in currency rates in the long term In the short term, there might not be too much variation in the currency and exchange rates. This will help the investor realize his expected profits. Fluctuation in currency rates in the long term can eat into the profits of the investor. Thus, it is advisable to book profits in the short term, than remain invested for a long term. 2. Poor Long Term Dividends and Capital Performance Due to uncertainty of demand and other market factors, the returns from a particular investment in foreign markets may not yield high returns in the long term. Thus it is better to go in fro high returns in the short term, rather than stay invested for a long term. 3. Volatility in Long Term All capital markets are subject to volatility from time to time. Instead of exposing the investment to these long term volatilities in the foreign markets, it would be prudent to book profits in the short term and move out. 4. Political Uncertainty Any country is put through political vagaries in the long term. So, it is better to make use of favorable policies and conditions in the short term and get higher returns than to stay invested in the long term and subject the investment to risks like change in government policies, taxation rules and procedures, removal of sops and subsidies. 5. Marketability of shares might become a problem In the long run, some shares might get delisted and the investor's money gets locked. In some overseas markets, trading volumes can be small and marketability of shares might become a problem. Dealing and settlement procedures can also pose a problem as settlement can be very slow in some countries. 6. Restrictions Imposed By Foreign Governments There could be new and strict restrictions imposed by the governments of other countries in the long term, which could lead to eroding of capital. Thus, it is better to stay invested in the short term than be too greedy and block all the capital in the long run. 7. Taxation Issues Taxation on capital gains is a fairly complicated issue. One should consider the net returns after allowing for various double taxation reliefs. There is generally a heavy tax burden to be paid if an investor stays put in the markets for a long term. Thus, it would be advisable to be invested in the short term than the long term. Analyzing all the points mentioned above, we can safely conclude that it is better to invest in foreign markets for a short term and make hay while the sun shines than to stay invested in the long term and expose the investment to market, bureaucratic and political uncertainities. References http://archive.treasury.gov.uk/pub/html/top/top8/an1.html http://www.staff.city.ac.uk/p.booth/notesonoverseasinvestment.pdf http://www.topnews.in/overseas-investment-limit-raised-mutual-funds-22487 http://www.financialexpress.com/news/Overseas-investing/230538/0 http://www.thestreet.com/etf/etftuesday/10287205.html http://www.fpif.org/briefs/vol3/v3n1tax.html http://www.atkearney.com/main.tafp=5,3,1,140,1 http://books.google.com/books The Hegemony of International Business, 1945-1970 By Mark Casson http://books.google.com/books Investment Performance Measurement By William G. Bain http://books.google.com/books British Protectionism and the International Economy: Overseas Commercial ... By Tim Rooth Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Short and long term returns on overseas market Essay”, n.d.)
Short and long term returns on overseas market Essay. Retrieved from https://studentshare.org/miscellaneous/1515612-short-and-long-term-returns-on-overseas-market
(Short and Long Term Returns on Overseas Market Essay)
Short and Long Term Returns on Overseas Market Essay. https://studentshare.org/miscellaneous/1515612-short-and-long-term-returns-on-overseas-market.
“Short and Long Term Returns on Overseas Market Essay”, n.d. https://studentshare.org/miscellaneous/1515612-short-and-long-term-returns-on-overseas-market.
  • Cited: 0 times

CHECK THESE SAMPLES OF Short and Long-Term Returns on Overseas Market Development

Homecoming of Chinese Students

The single party-controlled political state experienced a market-oriented approach to development after 1978 and since then output and the pace of the country's development quadrupled.... The country went ahead of Japan in the year 2001 with its economic development....
39 Pages (9750 words) Dissertation

Net Present Value and Internal Rate of Return

This report also recognized the need to recognize the investment in research and development already incurred by the company.... Research and development cost of 900,000 should be accounted for because without it, the expansion will be impossible to pursue.... In the case of the overhead costs, this report decided to use the 300,000 per annum as estimated by the project development team advisor.... It should be noted that the organization will be required at least £8,500,000 in cash in order to purchase new plant and equipment, finance research and development effort, and augment working capital....
10 Pages (2500 words) Assignment

Financial Market and Institution Systems

Poorly developed financial markets and institutions impose a restriction on economic development. ... inancial market is a system which Any commodity market might be considered to be financial market if trader's intention is not the immediate consumption of the commodity but as a means of delaying or accelerating consumption over time.... An economy which relies primarily on connections between buyers and sellers to allot capital is known as a market economy....
6 Pages (1500 words) Essay

Stock Market Index in China

However, Chinese government has promised improve legal and regulatory framework in order to meet several economic development goals.... The aim of this paper 'Stock market Index in China' is to examine whether macroeconomic activities and consumption trends and political policy have impacts on the movements of China's stock market index, and if so, to what extent these factors affect the volatility of the stock market in China....
22 Pages (5500 words) Dissertation

International Financial Risk and Control

The exchange rate of a particular nation's currency determines the price at which it trades for another currency on the exchange market.... An author of the essay "International Financial Risk and Control" outlines that the bilateral exchange rate is influenced by various issues....
8 Pages (2000 words) Essay

Mid-Market Firms to Reshore Business and Supply Chain Management

Other activities earmarked are product development, manufacturing and production.... The paper "Mid-market Firms to Reshore Business and Supply Chain Management" discusses that reshoring, which is the return of businesses to their places of origin, seems to be the future of mid-market firms in Britain and possibly other countries like Italy, France, United States, Germany, Belgium.... The paper will define reshoring, discuss the process of reshoring, its advantages and disadvantages, as well as, its application to the middle-market United Kingdom firms....
4 Pages (1000 words) Literature review

Financial Market Analysis: Integration between Chinese Stock Markets and International Stock Markets

Both Shanghai A and B market indices are taken instead of combined two indices of Shanghai and Shenzhen share markets into one portfolio index as in Greonewold et al (2004).... The author states that If a comparison is taken between the matured markets such as the Hong Kong, USA, Japan, and Taiwan we find that the potential spread in investing in Chinese markets may be a bit larger as a result of a poor linkage with international markets....
11 Pages (2750 words) Term Paper

BHC Australia - Financial Investment Strategy and Development Perspectives in the Australian Market

The paper 'BHC Australia - Financial Investment Strategy and development Perspectives in the Australian Market' is a brilliant example of a finance & accounting report.... The paper 'BHC Australia - Financial Investment Strategy and development Perspectives in the Australian Market' is a brilliant example of a finance & accounting report.... The paper 'BHC Australia - Financial Investment Strategy and development Perspectives in the Australian Market' is a brilliant example of a finance & accounting report....
8 Pages (2000 words)
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us