In this Globalized era, why is cross border equities investing still such an inefficient market?

Ahem, Yahoo, having reaped the globalization windfall with Alibaba how, about making Yahoo Finance a cross border equities information service?

If Yahoo won’t rise to the challenge – they seem to be letting Yahoo Finance decay from neglect – this is a great entrepreneurial opportunity.

Equities brokerage had its Napster moment when the Internet brought in online services such as eTrade. 20 years later, US domestic equities investing is hyper efficient, but cross border equities investing seems to be stuck in a pre digital era.

Professional traders and Investment Banks have the tools to do cross border equities investing. How about retail investors?

There are 5 challenges to cross border equities trading:

1. Accounting standards.

This is not as hard as it might appear. We only have two – GAAP and IFRS – and how hard is it to a create taxonomy translation?

2. Data Normalization.

Once you have done the GAAP/IFRS translation, any remaining translation should be quite easy. This is a territorial issue not, an exchange issue. The data is normalized across NASDAQ and NYSE, why not LSE and BSE?

3. Trading across exchanges.

Some brokerages already enable you to trade on international exchanges, so there is no technical hurdle at the transactional level. The hurdle is data normalization, so that you can trade with confidence based on reliable information.

4. Language.

I suspect that the CFO of a company listed in say Indonesia would happily invest in translating their IR materials into English in order to attract global investors. Failing that, Google Translate seems to work pretty well.

5. Currency exchange.

For example, an American investor spotting a great UK stock on LSE, might be daunted by seeing prices quoted in GBP. However the FX markets are hyper efficient and there are plenty of tools to hedge currency risk. A cross border equities service would simply make this look easy by having everything quoted in the investor’s home currency with the ability to drill down into the currency details if you want to.

A cross border equities information service would enable an investor to spot valuation anomalies within a sector across multiple geographic exchanges. There are lots of easy pickings for sectoral comparisons across exchanges; this is perfect for retail investors who have the time and sectoral domain expertise to do this type of analysis.

It is interesting how many areas in Fintech seem to break down when you go cross border – “bits don’t stop at borders, but money has to show its passport”. I  am sure there are some regulatory constraints, but a Cross border equities information service is just information about money, so does not need to be heavily regulated.

If somebody did build a good cross border equities information service, it would commoditise the exchange business. Today, a business that wants to attract global investors has to list on a global exchange (typically in America). If investors could easily find that stock on a local exchange, it would not matter on which exchange a business is listed.

5 thoughts on “In this Globalized era, why is cross border equities investing still such an inefficient market?

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s