The three major U.S. stock indexes closed at record highs on the 4th, with technology stocks rising strongly. TSMC ADR rose 0.9% to close at US$200.69, rising for four consecutive days and trading at a premium of 21.7% in Taipei. . What is TSMC ADR? What is the difference between TSMC ADR and TSMC in Taiwan Stock Market (2330)? Why are the two connected? This article will take you through ADR at once:
What are ADRs? What are the benefits of TSMC issuing ADRs?
ADR is the abbreviation of American Depositary Receipts, which refers to listed companies outside the United States that are listed in the United States. Simply put, TSMC ADR is the stock certificate for TSMC to be listed in the United States.
Generally speaking, stocks can only be bought and sold in the market in the region where they are listed. That is to say, Taiwan stocks can only be traded in Taiwan, and U.S. stocks can only be bought and sold in the United States. If a company is not listed locally and wants its shares to be traded in other markets, it must deliver the company's shares to a foreign depository institution in the form of depositary receipts (DR) and issue shares denominated in the local currency. Stock certificates, sold to overseas investors.
Depending on the place of issue, overseas depositary receipts will have different names. For example, non-U.S. listed companies issued in the United States are called ADRs (American Depositary Receipts); non-Taiwan listed companies issued in Taiwan are called TDRs (Taiwan Depositary Receipts); and those that can be issued in two The above stock market transactions are called Global Depositary Receipts (GDR).
For companies that issue ADRs, they can not only raise funds from U.S. investors, but also enhance the company's visibility in the U.S. market. For U.S. investors, since the depositary receipts are denominated in the local currency, there is no need to consider foreign trading systems, exchange rates and other costs when purchasing ADRs. They can simply buy stocks of non-U.S. companies by buying U.S. stocks.
All in all, whether you buy TSMC ADR or Taiwan Semiconductor Manufacturing Co., Ltd. (2330), you are buying the same company, but the listing location and the currency purchased are different. The biggest difference between the two is the transaction cost and pricing method.
Can investors in Taiwan buy ADR? What to pay attention to?
If investors living in Taiwan want to buy ADRs, they can do so through U.S. stock brokers. First of all, you must have a U.S. stock brokerage account. Most U.S. stock brokerages offer 0 handling fees and also have the advantage of dividend reinvestment, but exchange rate issues must be considered.
Generally speaking, 30% tax will be deducted when investing in U.S. stocks when dividends are distributed. However, the ADR company is not registered in the United States, so the U.S. government will not impose a 30% withholding tax, but will withhold the tax according to the regulations of each country. Taiwan also imposes taxes on overseas income, but the tax exemption amount is very high. Generally, ordinary people will not be taxed. For example, if an investor's annual overseas income does not reach NT$ 1 million, it does not need to be included in the basic income; if it exceeds, it will not be included in the basic income. Calculate whether the individual's basic income exceeds NT$ 6.7 million. If it exceeds NT$ 6.7 million, the NT$ 6.7 million will be deducted first, and the remaining balance will be calculated at a 20% tax rate.
Is there any correlation between TSMC ADR and Taiwan stocks? ADR conversion formula disclosed
In fact, not only TSMC issues overseas depositary receipts in the United States, but companies such as ASE, United Microelectronics (UMC), and Chunghwa Telecom also issue ADRs. Due to the same investment targets and the time difference, many investors will use ADR as a reference point for buying corresponding stocks in Taiwan.
However, although there is a linkage between the two, it is not absolute. If you want to know how to convert ADR to original stock, you must first understand that ADR and original stock are not exchanged 1:1. You must first check the stock exchange ratio. For example, 1 unit of TSMC ADR (TSM) is equivalent to 5 shares of TSMC stock (2330), and there will be a slight price difference between them. The formula for converting ADR stock price into Taiwan stock price is: ADR stock price ÷ number of shares exchanged × exchange rate = Taiwan stock price.
Taking April 13, 2023 as an example, we can see that the stock price of one unit of TSMC ADR is US$ 86, while the Taiwan stock closing price of TSMC (2330) on that day was NT$ 510, and one unit of ADR was US$ 510. For stocks, the price difference comes from the exchange rate.
If calculated using the closing price data of TSMC (2330) on April 13, 2023, the closing price of TSMC is $ 510; the closing price of TSMC ADR on April 13 is US$ 86.87, and the exchange rate is based on the spot exchange rate of the Bank of Taiwan. The median price is NT$ 30.51. Applying the formula for conversion, it is found that the ADR equivalent value of one Taiwan stock is approximately NT$ 530 (86.87 ÷ 5 × 30.51 = 530.08).
What do you think of TSMC's ADR premium and discount?
Theoretically, depositary receipts have the same rights and obligations as the issuing company's ordinary shares, and their stock prices will be linked. However, because the region and market are different, the stock price will rise and fall at different rates, resulting in "premium and discount" situations. .
If the ADR is more expensive than the original stock price, it is called a "premium"; if the ADR is cheaper than the original stock price, it is a "discount". Taking the price on April 13 as an example, the Taiwan stock TSMC is NT$ 510 yuan, and the TSMC ADR is equivalent to NT$ 530, which is equal to a premium of 3.77% ((510-530) ÷ 530 × 100%).
If the premium is too high, it means that foreign investors are very interested in TSMC ADRs. However, if the premium of TSMC ADRs is too high, it is recommended that Taiwanese people just buy TSMC radio stocks directly, otherwise it will be too expensive.
In summary, people who are accustomed to investing in Taiwan dollars do not actually need to buy TSMC ADRs. However, because the investment products are all TSMC stocks, and coupled with the time difference, there will be an obvious linkage between the two (although not a positive correlation). Generally speaking, investment People will regard TSMC ADR as the wind direction of TSMC (2330) and use it to refer to TSMC's trend that day.
