REYES ARCOS JOCELIN HAZZEL 4NV9

As the text refers, there is an important issue about investing in foreign stocks: the
approach of the portfolio managers investment. It means that his selection must be
based on an optimal strategy.
To structure their analysis they need to start from a view of the world, to know what
factors are affecting stock prices, to be aware about the global competitors, the
expected return modifications and risk of stocks.
First of all, is the financial analysis in an international context, as in the large
domestic firms, to know what are the expected return and the risk exposure. The
difficulty in obtaining the information could a problem, also the vision of the world
each one has.
Then, the difference in national accounting standards is very important, the
portfolio manager needs to know the model Anglo-American or Continental one
also the harmonization of accounting practices.
There are differences in global standards, like the business combinations,
consolidations, joint ventures, goodwill, financial leases, asset revaluations,
provisions, pensions, financial assets and derivatives and employee stock options;
which must be taken into account in making cross-border comparisons. Also the
effects of accounting principles on earnings and stock prices must be considered
when a company uses different national accounting standards.
Then, the valuation of a common stock requires a country and industry analysis.
In the country analysis we will find the business cycle which consists in a recovery,
early upswing, late upswing, economy slows and recession; also is important to
consider the business cycle synchronization. Then, the long-term sustainable
growth rate must be favorable.
In the industry analysis, the important issues are the return expected elements,
which are demand analysis, value creation (the learning curve, the economy of
scale, the economy of scope and the network externalities), the industry life cycle,
and competitive advantage, co-opetition and the value net, competitive strategies,
and the risk elements as market competition, Value chain competition, rivalry
intensity, substitutes, buyer power, supplier power, new entrants, government
participation, risk and covariance.
And finally the equity analysis, as the industry valuation or country valuation, also
is important with the global financial ratio analysis, the role of market efficiency in
individual stock valuation, the valuation models and the franchise value and the
growth process, the inflation-like effects of currency movements on stock prices,
between other macroeconomic factors.