National Champions: Around the world in 15 companies

An annual feature in the IC over the past decade has seen us explore global markets through the prism of investment trusts ('Around the world in eight investment trusts').

It’s a useful exercise, not only because it allows for a top-down assessment of why one country or region might outperform another, but also because it shows why vehicles operating in the same market offer such differing returns.

But what if we were to look at countries in terms of a single share? The simplest way to do so is to choose the biggest – the “national champions”, if you like – of each exchange. These provide a useful insight into their home nation, its economy and its market, and they usually have the advantage of being very liquid.

Their size means they are not hidden gems, but the fact that many have emerged from domestic markets to become major industry players mean they’re useful ideas for investors wanting to look beyond the UK market.

Of course, there are a bunch of different practical and risk factors that anyone thinking of directly buying shares in an overseas exchange needs to consider. In some markets, such as India, direct equity investment is not possible for anyone other than non-resident Indians. Even in countries where foreign investment is allowed, formal or informal capital controls can mean there’s no way of being able to repatriate profits, or currencies may be so unstable as to wipe out any gains made.

Then there are issues such as the rule of law, and how well minority shareholders’ rights are upheld. We have included rankings on minority shareholder rights from the World Bank's latest Doing Business index – albeit this index was halted in 2021 after “data irregularities” were reported. The organisation is launching a new competitiveness index, Business Ready, in September. We’ve also included the latest country scores from Transparency International’s Corruption Perceptions Index. In both cases, the lower the score, the cleaner the market.

In general, emerging markets “have weaker corporate governance, including weaker minority shareholders rights” than developed markets, and even where laws are properly enforced, cases could take decades to clear, warns Ashok Parameswaran, president of the Emerging Markets Investors Alliance – a non-profit body set up by institutional investors to promote good governance.

He also points out that “the problem of asymmetric information between institutional and retail investors is even bigger in emerging markets than in advanced economies”.

Yet corporate governance is as much an issue for developed markets, particularly when it comes to issues such as differing share classes with preferential voting rights.

“That’s something that these days, I think you’ll find it more often in the tech sector in the US,” notes Claus Born, an institutional portfolio manager for Franklin Templeton.

The US is, at least, a market through which investors can reasonably easily access local shares.

Some foreign shares can also be bought through single-stock exchange-traded funds, while funds and investment trusts focusing on single countries will often have hefty weightings to these national champions, too.