Guide
Buying Foreign Tech Stocks: ADRs, Dual Listings and Currency Risk
Some of the most important technology companies are not American: TSMC in Taiwan, ASML in the Netherlands, Samsung Electronics in Korea, Tencent in Hong Kong, Tokyo Electron in Japan. There are three common ways to own them, and each one handles trading hours, costs and currency differently.
Option 1: depositary receipts in New York
An American Depositary Receipt (ADR) is a certificate issued by a US bank that holds the company's real shares in the home market. The ADR trades in US dollars during New York hours, like any US share. When an ADR is listed on a US exchange, the shares are often called American Depositary Shares (ADS).
One ADR does not always equal one share. Each programme has a fixed ratio:
- one TSMC ADR represents five ordinary TSMC shares listed in Taiwan;
- one Alibaba ADS represents eight ordinary shares listed in Hong Kong.
The depositary bank charges a small fee, usually a few cents per ADR per year, which is often deducted from dividends or charged by your broker.
Some European companies list in New York in a similar way without the ADR label. ASML, for example, trades on Nasdaq as New York registry shares alongside its listing in Amsterdam.
Option 2: dual listings
Some companies list their own shares on two exchanges. Logitech trades in Zurich and on Nasdaq; Shopify trades in Toronto and in New York; Alibaba's shares in Hong Kong and its ADSs in New York can be converted into each other.
With a dual listing you can choose where to buy: often in your own currency and time zone, or in the market with more trading volume and tighter spreads.
Option 3: buy in the home market
Many brokers give direct access to foreign exchanges. You then own the actual shares, trade during local hours and pay in the local currency. This is the only option for companies without a foreign listing. For mainland China, international investors usually buy A-shares through Stock Connect, the link between Hong Kong and the Shanghai and Shenzhen exchanges, or through the QFII scheme for institutions.
Check the trading unit before you buy: Tokyo trades in units of 100 shares, Taiwan's standard lot is 1,000 shares (with smaller odd lots possible), and in Hong Kong each company has its own board lot.
Why prices stay in line
An ADR and the underlying share are worth the same, adjusted for the ratio and the exchange rate. Professional traders buy the cheaper one and sell the dearer one until the gap closes, so prices stay close.
The gap can open while one market is closed. TSMC's ADR trades in New York at night in Taiwan; if chip stocks move on Wall Street, the ADR moves straight away and the Taiwanese shares catch up when Taipei opens. The live market clock shows which of the two markets is trading at any moment.
Currency risk does not disappear
Buying in US dollars does not remove currency risk. An ADR's dollar price follows the home-market price converted at the current exchange rate. Your return in your own currency has two parts:
| Share price in local currency | Local currency vs your currency | Your return |
|---|---|---|
| +10% | 0% | +10% |
| +10% | −8% | about +1.2% |
| 0% | +5% | +5% |
| −5% | +5% | about −0.3% |
The second line works out as 1.10 × 0.92 = 1.012. Our currencies page shows the weekly move of each exchange currency against the US dollar.
Dividends and tax
Dividends from foreign companies are often taxed at source in the company's home country. Tax treaties may reduce the rate, and some countries let you reclaim part of it, but the rules depend on where you live and what kind of account you use. ADR dividends are converted into dollars by the depositary bank, after any fees. Ask a tax adviser if you hold large positions abroad.
A short checklist
- Is there an ADR, a dual listing or only a home listing?
- What is the ADR ratio and the yearly depositary fee?
- Where is most of the trading volume, and what are the spreads?
- Which currency will you pay in, and what does your broker charge to convert it?
- Will dividends be taxed at source, and can you reclaim any of it?
Sources
- U.S. Securities and Exchange Commission
- Taiwan Stock Exchange
- HKEX
- European Central Bank reference rates
This guide explains how markets work; it is not investment advice. Check current rules with the exchange or your broker.