Of the hundreds of stocks trading on the OTC markets some attain the status of “OTCQX”. These stocks have met higher standards than the regular OTC-traded stocks and they are generally made of well established and solid companies. Current less than 400 stocks have the OTCQX status.
Download: OTCQX Stocks List as of Dec 31 2012 (in Excel)
Source: OTCQX
Two banks only have failed so far this year compared with many failures in 2012 and the years before. The number of bank failures has declined since the peak attained during the global financial crisis. In addition, many of the struggling banks have cleaned up their balanced sheets and raised capital in the years since. Hence their capital ratios are higher now and some are increasing lending sharply according to a recent Wall Street Journal article.
Since hundreds of banks trade on the US markets investors have to be extremely selective with picking individual banks. In order to avoid the pitfalls of stock selections, investors looking to gain exposure to this sector can go with some of the ETFs available for this sector. Investing via ETFs is a cheaper option and removes the risk of investing in banks that turn out to be bad. Some of the bank ETFs are listed below for further research:
1. SPDR S&P Bank ETF (KBE)
Current Dividend Yield: 1.96%
Total Assets: $2.0 B
This ETF includes the super banks such as Citigroup and Bank of America (BAC).
2. PowerShares KBW Regional Banking ETF (KBWR)
Current Dividend Yield: 2.82%
Total Assets: $21.0 M
This ETF focuses on the regional banks but the total assets in the fund is small.
3.SPDR S&P Regional Banking (KRE)
Current Dividend Yield: 1.91%
Total Assets:$1.0 B
4. PowerShares KBW Bank Portfolio ETF (KBWB)
Current Dividend Yield: 1.22%
Total Assets: $79.0 M
5. iShares Dow Jones U.S. Regional Banks Index Fund (IAT)
Current Dividend Yield: 1.82%
Total Assets: $174.0 M
6.First Trust NASDAQ ABA Community Bank Index Fund (QABA)
Current Dividend Yield: 3.77%
Total Assets: $9.0 M
Disclosure: No Positions
The services sector accounts for a major portion of the economy in most developed countries. On the other hand, emerging market economies s are characterized by a mixture of natural resources, services and manufacturing with individual countries having varying portions of each. For example, the U.S. is world’s largest economy at about $15.0 Trillion. But much of the economy is based on the services sector. According to the CIA’s World Factbook site, the services sector accounts for about 79.6% of the economy with agriculture and industry accounting for 1.2% and 19.2% respectively. China’s economy is majority based on manufacturing and less on resource extraction. The Russian economy is heavily dependent on natural resources such as crude oil, natural gas, minerals, etc. and less on services and manufacturing.
In general, the manufacturing sector is very important for a country’s economy. This especially to emerging markets since the sector provides not only stable and well-paying jobs but also helps a country build the necessary infrastructure to help advance to the next level. For developed economies also the manufacturing sector is important. However since most of the developed countries have switched to service-based economies, their importance has diminished. Countries such as Germany with strong manufacturing industries have better economies than developed countries with higher reliance on the services sector. In the U.S. the service sector dominates the economy and up until a few years ago the FIRE (Finance, Insurance and Real Estate) sector accounted for a significant part of the economy. The reliance on the services sector leads the U.S. through the boom and bust cycles and generally makes the economy more volatile as we have seen in the past few years.
The following chart shows the world’s top manufacturing economies by decade:
Click to enlarge
The rise of emerging countries such as Brazil and China, India as top manufacturing economies since the 1980s is commendable. Though the UK is in this list, manufacturing accounts for just 10% of the British economy compared to over 33% for the Chinese economy. Similarly manufacturing’s share of the U.S. economy is just 12% as shown in the chart below:
Source: Chart of the week: how important is manufacturing to emerging markets?, beyondbrics blog, FT
Emerging countries are more dependent on manufacturing than developed countries with China topping the list among emerging markets. As I noted above, manufacturing is a large component of the German economy. It is interesting to note that all the other European countries (except the UK ) with lower manufacturing experienced severe fiscal issues during the European debt crisis.
For many years I have been wondering about the stock market participation rates across countries. At a high level we know that certain countries have high level of participation while in some countries the participate rate is negligible and in some it is average.For example, we can expect people in developed countries to participate more in the equity market compared to low or no participation rates in frontier markets. However my research into this subject led me to conclude that this assumption is not true. Participation rates vary widely even among developed countries. In this post, let me summarize some of the key takeaways from my research into this interesting subject. It should be noted that high quality up to-date data seems to be unavailable on this topic and all the information presented below are the latest I could find from various sources.
The chart below shows the domestic investors’ participation rates in the local stock market across countries:
Click to enlarge
Source: Investor Protection, Equity Returns, and Financial Globalization,Mariassunta Giannetti and Yrj ¨o Koskinen, JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS, Vol. 45, No. 1, Feb. 2010
Some of the important points to remember related to the domestic investors’ participation rates in the domestic equity market:
Update:
13. One study found that there is a direct correlation between IQ and market participation. People with higher IQs participate more than those with lower IQ levels.
14. A couple of excellent quotes from the “Trusting the Stock Market” paper:
“The decision to invest in stocks requires not only an assessment of the risk-return trade-off given the
existing data, but also an act of faith (trust) that the data in our possession are reliable and that
the overall system is fair”
” Dyck, Morse, and Zingales (2007), for example, estimate that more than 50% of corporate fraud
goes undetected. This figure is likely to be even higher for other forms of security fraud involving
small investors.”
“After the recent corporate scandals, many politicians and business commentators argued that investors
were deserting the stock market because they had lost their confidence in Corporate America.
In spite of the popularity of this interpretation, the finance literature has thus far ignored the
role of trust in explaining stock market participation and portfolio choices.”
Sources and Related:
Click to enlarge
Via The Big Picture
15. Financial Literacy and Stock Market Participation, Annamaria Lusardi
16. Household Participation in Stock Market Varies Widely by State, St. Louis Fed
17.The Effects of Trust on Stock Market Participation, Mårten Hagman
18.Participation Matters: Stock Market Participation and the Valuation of National Equity Markets by Matthew D. (Matthew David) Forbes
19. East Germans still invest very less in the stock market, Research Paper at University of California, Berkeley
Updates (12/18/23):
Click to enlarge
Source: More Americans Than Ever Own Stocks, WSJ
Related posts:
Hundreds of unsponsored American Depositary Receipt (ADR) stocks trade on the US OTC markets. The document attached below lists all those unsponsored ADRs for which Citibank is the depository:
Download: Citi’s Master List of Unsponsored-ADRs ( in pdf format)