Five years ago if a New York City broker wanted to buy stock on the Russian exchange, he might have been surprised at the time lag between his order to buy and the settlement date. Why? Because without central registrars, the only way to settle the transfer was to put someone on the train from Moscow to Siberia -- or wherever the company was located -- and physically hand the documents to the proper company officials.  
 
Granted, five years is an eternity in the scope of technology, but trading in emerging stock markets around the globe can still present some challenges whether you are investing as an individual or on behalf of an institution.  
 
So why bother going outside such well-regulated markets as the Nasdaq or the venerable New York Stock Exchange? Because sometimes a foreign market can offer things that a domestic stock exchange can't. For example:  

• Valuations on stocks tend to be less in overseas markets. South Korean high-tech stocks can be cheap compared with U.S. firms, for instance.  
   
  
• There are overlooked investments in 'emerging markets.' South Africa is labeled an emerging market, but actually has very strong, fully developed industrial and accounting infrastructures.  
   
  
• New opportunities abound. Nigeria has huge oil reserves, but in the past was a risky investment due to instability and corrupt dictatorships. Today Nigeria has a new democratic government that promises to reduce corruption.  
   
  
• Getting in early can pay you back in spades. Jim Rogers, a savvy U.S. investor, was one of the first to buy into the long-dormant Austrian stock market in 1984. When he sold out in 1987, the Austrian market had risen more 400%.  
   
  
• Opportunities develop as political landscapes change. After decades of threats from the USSR, Finland now takes advantage of its proximity to the Old Russian Bear. Many Finnish firms now have huge marketing opportunities because they are in an ideal base from which to export goods to Russia.

David Grayson, a partner in the New York investment firm Auerbach and Grayson, specializes in foreign exchanges. He believes that as long as you are adaptable, are able to see the real potential in an emerging market, and have strong relationships with your traders, the opportunities are tremendous.  
 
He cites the Egyptian stock market as an example:  

• Although it is viewed as an emerging market, Egypt's exchange is actually more than 100 years old. In the early 1920s it was one of the top stock exchanges in the world. But Colonel Gamal Nasser nationalized the exchange after his 1952 coup, and trading virtually ceased for decades. Five years ago, President Hosni Mubarak's administration revamped the exchange regulations. Now there is a reasonable, stable environment that is privatizing, offering mutual funds, and is very open to foreign trade and investment.  
   
  
• Egypt boasts both the most central location in the Middle East and the largest population. Although its 67.3 million people generally are poor, they are basically well educated, and English is the most popular foreign language. As many as 10 million Egyptians are wealthy enough to follow Western consumption patterns. By analyzing the political and economic trends, and developing a knowledge base of the religious and social influences on business, an investor can sidestep potential hazards and invest in growth industries.

Grayson's Egyptian partners recommend specific construction firms, which are expected to grow along with the region's infrastructure and booming population.  
 
Of course, there are always potential barriers to investing in foreign exchanges. For instance:

• Setting up local offices from which to work can be very expensive. Whether you are investing on your own or on behalf of others, you will pay for this via brokerage costs. Some brokers have local offices while others rely on partnership agreements. Auerbach Grayson, for instance, offers research on foreign stocks for institutional investors and has exclusive agreements with brokerage partners in 75 countries.  
   
  
• You need to adapt to different ways of doing business. Even workweeks vary. Egypt is primarily Muslim, and the workweek generally runs from Saturday to Wednesday. Holidays also are dynamic -- Ramadan actually occurs twice during the year 2000. And religious beliefs are only one aspect of conducting business in different cultures.

Emerging markets can be turbulent. From West Africa to Taiwan, markets can be impacted by political, economic, and natural disasters.  
 
Overall, if you are investing on your own, you must know with whom you're doing business. As many U.S. executives have found, trust and interpersonal relationships are key in the majority of the world. Making a personal investment of time definitely will reflect in your monetary investment, and will give you more opportunities for growth than just in your portfolio.  
 
Finally, be sure to research your market. Buy the research or do it yourself -- but get it. You can't expect to play the game if you don't know the rules. And in international investing, every game is an away game.  
 

Reprinted from IndustryWeek, March 28, 2000