All Roads Lead to Wall Street

Wall Street's tremors reverberated last week through Rome's Via Parigi, Rio's Avenida Rio Branco and Hong Kong's Queen's Road Central. With tens of thousands of non-American investors holding stakes in the U.S. stock market, foreign trading on the New York Stock Exchange rose from $5.8 billion in 1961 to $7.8 billion last year, when it accounted for more than 5% of all Big Board transactions. One reason for the market's weakness is that the foreigners have been selling. Last year they sold $409 million more than they bought, largely because the British government liquidated $500 million in U.S. shares to increase its stockpile of dollars and support the pound.

Invasion of Brokers. While the foreign trading lately has hurt the market, it has substantially helped U.S. stockbrokers. Rising volume means rising commissions for them, and they have been flocking abroad to get in on the action. Since 1959 the number of U.S. brokerage branches has jumped from zero to twelve in Germany, 15 to 19 in Britain, and seven to 20 in France. Merrill Lynch, Pierce, Fenner & Smith has increased its outposts from none in 1951 to 17 today, and Bache & Co. now has 16 offices in Mexico City, Tokyo, Beirut, Hong Kong, and a dozen European cities. Also spreading overseas are Dean Witter; Fahnestock; Harris, Upham; Smith, Barney, and scores of other brokers. In addition, U.S. bank branches do a brisk business in the stocks of American companies or their foreign subsidiaries.

A few years ago, the bulk of the business came from Americans abroad, but now most of it is done with wealthy foreign citizens or institutional investors. In Germany the typical customer is a local businessman or professional man who plunks close to $30,000 into the U.S. market. Such investors are attracted to Wall Street partly because they can get far more relevant information about U.S. companies than about indigenous corporations, even though European firms are becoming somewhat less secretive about their operations. Says a Bache salesman in Paris: "We can tell a Frenchman what we think General Motors will earn in the next quarter, but he normally cannot find out what a French company earned last year until some time this summer--and then it probably won't be the right figure."

We'll Call You. Though traditions in some countries forbid brokers to advertise or openly solicit customers, the U.S. firms have built a big clientele and aggressively hold onto it. A German broker seldom phones his customers--and charges them 20 pfennigs for each call when he does--but the U.S. brokers are always on the phone with suggestions and send out as many as eight research reports a month. Many governments restrict trading in U.S. stocks; Britain imposes a 4 1/4% tax on it, and countries as diverse as Chile and Denmark flatly prohibit it. Imaginative investors, however, usually can slide around the restrictions. The main reason for their interest is that, despite the recent weakness, the U.S. stock market has had a longer and stronger upswing than any other in the world--and foreign investors want to buy a piece of the expansive U.S. economy.

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