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Currently, I would like to invest in the stock of HSBC.

Details on Google Finance
Details on Yahoo Finance

I am not sure whether I should purchase from the Hong Kong or US stock market. What I know is that on the US stock market HSBC is listed as an ADR; with 1 ADR representing 5 common shares. On the HK stock market it is listed as common stock.

I was wondering, will ADR owner enjoy the same benefit as common shares holders?

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The essential difference b/n ADR and a common share is that ADR do not have Voting rights. Common share has.

There are some ADR that would in certain conditions get converted to common stock, but by and large most ADR's would remain ADR's without any voting rights.

If you are an individual investor, this difference should not matter as rarely one would hold such a large number of shares to vote on General meeting on various issues.

The other difference is that since many countries have regulations on who can buy common shares, for example in India an Non Resident cannot directly buy any share, hence he would buy ADR. Thus ADR would be priced more in the respective market if there is demand. For example Infosys Technologies, an India Company has ADR on NYSE. This is more expensive around 1.5 times the price of the common share available in India (at current exchange rate).

Thus if you are able to invest with equal ease in HK (have broker / trading account etc), consider the taxation of the gains in HK as well the tax treatment in US for overseas gains then its recommended that you go for Common Stock in HK. Else it would make sense to buy in US.

  • Re "then its recommended that you go for Common Stock in HK. Else it would make sense to buy in US", uhh so which is it? For HSBS should you put money in ADR or non-ADR? – Pacerier Dec 31 '16 at 5:29
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As far as I know, with ADRs you're essentially trading by proxy -- a depository bank is holding the actual stock certificate, and must provide you with the actual stock on demand.

The one thing that is different is that in the event that the ADR is terminated (which sometimes happens with mergers), you have a limited period of time to sell the shares -- otherwise, you get the actual foreign stock that you may or may not be able to trade without transferring to a different broker.

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One other issue you may face is when the company announces poor financial results and begins to tank, you will not be able to sell until the US market open and could incur a lot of pain.

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    But isn't that is same for any common stocks? If I buy the HSBC common stocks from HK stock market, I also need to wait till HK market open. – Cheok Yan Cheng Sep 7 '10 at 9:40
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I would say you should invest in the market that is more convenient for you, bearing in mind that if you buy ADRs you may have some things to keep an eye on depending on certain events as mentioned by duffbeer703.

So, if you are investing with an account in the U.S., go with the ADRs as that will avoid some currency conversion hassles and possible exchange rate issues. I am not certain, but I have a feeling that would also make it easier for you to keep the taxman happy.

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