Same Company - different performance uk vs usa shares - why ??

[Cortina]

Hope my question title makes sense - I shall enlarge on it here:
Take Shell as an example (I have examined two others - Rio, and Vod ... same "problem" !!)
Shell in usa (ticker SHEL ) over 2022 , went up 31.3% (approx) , Shell in London market (ticker SHEL.L) , went up by 43.3%


Why are these figures SO different ? Same company (essentially ?). I would NOT expects figs to be identical , but I would expect them to be similar. Graphs of the two tickers over the year , show the same pattern , but a diverging trend , leading to two very different numbers at the end of the year.
Can someone help me explain why ??

[Cortina]

Did I ask a difficult or a stupid question ? (Having a problem understanding that 108 people have looked at this ..... and not a cheep out of anyone !!??)

[jollystomper]

The high level answer is that SHELL traded in the USA is actually an American Depository Receipt (ADR) that represents, but is not actually, the SHEL.L London stock. As such, their performance can differ from the actual stock. The devil is in the details of how the ADR is structured.

More info on ADRs: https://www.investopedia.com/terms/a/adr.asp

Specific to Shell, his link may or may not help: https://www.shell.com/investors/information-for-shareholders/share-information.html

[Cortina]

Quote:

Originally Posted by jollystomper The high level answer is that SHELL traded in the USA is actually an American Depository Receipt (ADR) that represents, but is not actually, the SHEL.L London stock. As such, their performance can differ from the actual stock. The devil is in the details of how the ADR is structured. More info on ADRs: https://www.investopedia.com/terms/a/adr.asp Specific to Shell, his link may or may not help: https://www.shell.com/investors/information-for-shareholders/share-information.html

Yes - I was aware of this , but would still have expected the shares to move the same(read similar) - relative to each other...... but no , in the case of some shares eg Rio - the difference in performance in just one year (2022) is more than a factor of TWO. (6.38% VS 18.52% in the case of Rio !!!)


Quote from first article you linked :

"Because of arbitrage, an ADR's price closely tracks that of the company's stock on its home exchange. Remember that arbitrage is buying and selling the same asset at the same time in different markets. This allows traders to profit from any differences in the asset's listed price. "



From this , I would have expected the two values to move in a similar fashion - hence my original question.

[pb4uski]

I wonder if foreign exchange is part of the difference since UK stock is in GBP and US ADR is GBP denominated shares converted to USD?

[DJRR]

The NYSE trades in $US and the FTSE trades in GBP? The ADR does not have the same dividend rights as the base share? It paid a lot of GBR dividends that are worth less in $US? Different tax implications?

[Cortina]

Quote:

Originally Posted by pb4uski I wonder if foreign exchange is part of the difference since UK stock is in GBP and US ADR is GBP denominated shares converted to USD?

this and the response below it, are semi interesting , semi relevant .... but don't really explain why the big Delta in share price performance over a year (to me anyway)

[Dd852]

Foreign exchange is one; the different investor mix in the exchange is another; different index benchmarking is one more; different local market volatility and trends is yet one more.

The price of a stock is of course related —but not strictly tied to — the performance and “value”of the underlying company. It is also simply a marker that has a value in the eye of the local beholder.

As a kid, if I had a blue marble I could trade it on my street for a green but if I took it into school I could get two greys. It was the same blue marble. The market was different.

[NW-Bound]

Quote:

Originally Posted by Cortina Hope my question title makes sense - I shall enlarge on it here: Take Shell as an example (I have examined two others - Rio, and Vod ... same "problem" !!) Shell in usa (ticker SHEL ) over 2022 , went up 31.3% (approx) , Shell in London market (ticker SHEL.L) , went up by 43.3%

Quote:

Originally Posted by pb4uski I wonder if foreign exchange is part of the difference since UK stock is in GBP and US ADR is GBP denominated shares converted to USD?

+1

The US dollar gained strength in 2022, and something priced in US dollar will show less gain than it does in the weaker currency. So, let's check.

On 1/03/2022, 1 GBP = 1.3580 US$
On 12/30/2022, 1 GBP = 1.2083 US$

Loss ratio of GBP v. US$ = 0.89x

Stock performance ratio as seen by OP: 1.313/1.433 = 0.92x

Not quite the same, but close. The numbers that I used above may not correspond to the exact same dates for the currency and stock price comparison.


PS. If an asset is priced wrongly across different currencies, an arbitrageur will take advantage of it to simultaneously buy low/sell high. This will drive the price difference down. A small difference may exist, but a 10% difference for something as liquid and visible like Shell stock shares will not go unnoticed.

[Cortina]

Quote:

Originally Posted by NW-Bound +1 The US dollar gained strength in 2022, and something priced in US dollar will show less gain than it does in the weaker currency. So, let's check. On 1/03/2022, 1 GBP = 1.3580 US$ On 12/30/2022, 1 GBP = 1.2083 US$ Loss ratio of GBP v. US$ = 0.89x Stock performance ratio as seen by OP: 1.313/1.433 = 0.92x Not quite the same, but close. The numbers that I used above may not correspond to the exact same dates for the currency and stock price comparison. PS. If an asset is priced wrongly across different currencies, an arbitrageur will take advantage of it to simultaneously buy low/sell high. This will drive the price difference down. A small difference may exist, but a 10% difference for something as liquid and visible like Shell stock shares will not go unnoticed.

OK - let's assume that's what it is ~ currency exchange / rates. In that case , then all the different shares (on the two exchanges , USA &UK) would have the same/ similar pattern , so the Rio , Vod , and Shel would have same / similar differences ..... but they don't ??

[NW-Bound]

Quote:

Originally Posted by Cortina OK - let's assume that's what it is ~ currency exchange / rates. In that case , then all the different shares (on the two exchanges , USA &UK) would have the same/ similar pattern , so the Rio , Vod , and Shel would have same / similar differences ..... but they don't ??

Ah, you make me work too hard. But I will do another calculation with Rio to show you.

On London Stock Exchange, here are the close prices of RIO:

1/4/2022: 4938.5
12/30/2022: 5798

RIO rose by 1.174x when priced in GBP

On US Stock Exchange, here are the prices of RIO:

1/4/2022: 67.52
12/30/2022: 71.20

RIO rose by 1.054x when priced in US$.

The performance of RIO when measured in GBP is 1.174/1.054 = 1.114x higher than when priced in US$. But that's because GBP is getting cheaper relative to the US$.

Now, let's look at the exchange rate of GBP to US$.

1/4/2022: 1 GBP = US$1.35
12/30/2022: 1 GBP = US$1.21

The US$ has gained strength relative to the GBP by a factor of 1.35/1.21 = 1.116x.


I am not going to do VOD, but you can check it yourself if curious.

[Cortina]

Quote:

Originally Posted by NW-Bound Ah, you make me work too hard. But I will do another calculation with Rio to show you. On London Stock Exchange, here are the close prices of RIO: 1/4/2022: 4938.5 12/30/2022: 5798 RIO rose by 1.174x when priced in GBP On US Stock Exchange, here are the prices of RIO: 1/4/2022: 67.52 12/30/2022: 71.20 RIO rose by 1.054x when priced in US$. The performance of RIO when measured in GBP is 1.174/1.054 = 1.114x higher than when priced in US$. But that's because GBP is getting cheaper relative to the US$. Now, let's look at the exchange rate of GBP to US$. 1/4/2022: 1 GBP = US$1.35 12/30/2022: 1 GBP = US$1.21 The US$ has gained strength relative to the GBP by a factor of 1.35/1.21 = 1.116x. I am not going to do VOD, but you can check it yourself if curious.

Oh dear - I feel a bit stupid now - will check some others for myself . I have noticed this myself at tax return time (in uk - about now !!!) that what look like small differences in exchange rate , can have a mighty big impact when applied to different prices , at different times , with different exchange rates ...... every day a school day we say here !