Global exposure important to investors, Goldman says

NEW YORK — Exposure to global markets is playing an increasingly important role in the confidence investors have in a company and its stock, according to evaluations of 2006 fourth-quarter company reports published last month by Goldman Sachs & Co. Inc. “[Globalization] has been going on for several years but is in the midst of accelerating,” said Marc Irizarry, vice president of global investment research at the New York investment bank, who wrote the evaluations. For example, the common thread that he has seen so far through quarterly earnings reports from asset managers “is exposure to global and international funds, which are flowing at a much more significant rate, bringing in more new money than domestic-only funds,” he said. “Over the past month, on a weekly basis, international and global funds have brought in $2.9 billion more than their domestic counterparts.” Mr. Irizarry said he thinks that exposure to a “very strong global flow of trends, with valuation being a key consideration, as well,” is important to investors. Even though he sees a lot of money being poured into international funds, he noted that the global arena might not be the right thing for all investors. But “at the end of the day, that’s where I’m looking,” Mr. Irizarry said. “We see many examples of large asset mangers seeking global distribution. That will continue to be the key characteristic going forward,” Mr. Irizarry said. “Emphasis will be placed on tapping into the growing wealth that’s out there,” he said. Most chief executives are hearing investors loud and clear. In a separate report, New York-based PricewaterhouseCoopers LLP reported in its 10th annual Global CEO Survey, published last month, that chief executives are looking toward geographic expansion and global opportunities. “CEOs believe their companies have to become increasingly global in order to meet shareholder expectations,” according to the report, titled “Was: Within borders, Is: Across borders, Will be: Without borders?” To be sure, comfort in investing in global growth is closely related to the fact that 90% of chief executives — nearly twice as many as five years ago — said they felt confident about revenue growth over the next year, while 93% said they felt confident about growth over the next three years, according to the survey. Almost half of the chief executives in the survey reported that they had completed a cross-border merger or acquisition or planned to make one in the next year. The main motivation for 65% of respondents was access to new markets. The survey also showed that this trend isn’t likely to fade anytime soon and that these chief executives are concerned with building relationships for the long haul. In fact, chief executives now see outsourcing as a way to create global partnerships, not just as a means for operational cost cutting. Just 15% of chief executives cited cost as the main reason for maintaining relationships with particular suppliers. Furthermore, chief executives said they are sending activities abroad that previously were considered too important. For instance, 12% said they are prepared to outsource research and development; 11% said they are prepared to outsource human resources; and 9% said they are prepared to outsource sales and marketing. “[Chief executives] are revisiting their strategies to emphasize collaborative opportunities — not only across boundaries within their own network but externally, as well, with strategic partners and peers in both the public and private sectors,” Samuel A. DiPiazza Jr., chief executive of PricewaterhouseCoopers International Ltd., wrote in the report. “[Our survey revealed] a significant opening up of the global marketplace, driven by emerging economies — not only the so-called BRICs (Brazil, Russia, India and China), but other countries (such as Indonesia, Mexico and Turkey) and regions (Eastern Europe, the Middle East and Latin America), as well,” he wrote. But companies are being cautious about their ventures. The majority are targeting their countries’ traditional trading partners, according to the report. Moreover, most companies believe that in order to succeed in the globalized world, they need to address local and regional climate, health care and education issues, according to the report. It is these active players who will please local communities and, in the end, investors, the report said.