European, Asian Markets Lure Stock Investors

North American exchanges are producing lower returns, encouraging investment abroad

SPURRED by low or declining interest rates, strong export sales to North America, and a gradual easing of recessionary pressures, global stock markets are posting surprising gains.

Even faster growth in stock values can be expected during the second half of 1993 and in 1994, experts say.

"Europe is looking a little better in terms of economic growth," says David Hartman, an economist with DRI/McGraw-Hill, an economic consulting firm in Lexington, Mass.

Moreover interest rates are expected to continue to move downward in Europe, reflecting turbulence in that continent's monetary system. The failure of the Bundesbank, Germany's central bank, to cut interest rates last week caused investors to rush in to buy non-German stocks - such as issues from France, Britain, and Spain - on the assumption that interest rates will now fall outside Germany. A good year

So far this year, many key global stock markets have been performing well. The Swiss market, for example, is up 23 percent; Germany, up 19 percent; even Japan, for all its political and economic challenges, has posted 17 percent gains. The Dow Jones industrial average has posted gains of about 8 percent.

The world stock index of Morgan Stanley Capital International measures stock market valuation gains in the 20 largest developed countries. It is up 15.5 percent through June 30, compared to a decline of 4.76 percent for 1992 as a whole.

Morgan Stanley's European and Asian indexes, meanwhile, continue to outperform the North American (US and Canada) index. The Pacific index leads the pack, up 37.8 percent; the European index is up 8.7 percent. The North American index is up 5.3 percent.

In the case of Asia, market gains are evident "almost across the board, among local stock exchanges" says a spokeswoman for Morgan Stanley. The Japanese index is up a whopping 41.7 percent; Hong Kong up 30.1 percent; Malaysia, up 22.9 percent. The slowest performer within the Pacific index, Singapore, is still up 11 percent.

In the case of Europe, says the Morgan Stanley spokeswoman, Finland is out front, up 34.5 percent, with Italy, Switzerland, and Sweden all posting gains of 13 percent or better. But even the huge German and French markets are looking upbeat, with gains of 6.5 percent and 5 percent, respectively. War has few effects

Global unrest, such as military conflict in former Yugoslavia, and currency and political difficulties in Russia, are not seen as working against world markets. Rather, global markets continue to focus on interest rates.

Despite last week's decision by the Bundesbank, the bank has been slowly reducing rates during 1993. High German rates have helped keep rates high in nations whose currencies are included in the European Monetary System.

Although some investment managers are increasingly cautious about investing in equities in general - given high valuation levels in both overseas and North American markets - many financial houses recommend buying global stocks. Thus, analysts for Salomon Brothers have been recommending European stocks, excluding German issues. Salomon analysts favor French over German issues, in part because the price/earnings ratio is now high for Germany. Salomon particularly likes Switzerland and Sweden, where econom ic growth has been under way and where valuation levels are more modest.

Analysts at IDS Advisory Group in Minneapolis also say that the potential for lower interest rates in Europe will continue to aid that continent's markets.

One question mark regarding international markets involves China. Beijing is seeking to slow national growth, says Mr. Hartman of DRI. But the Chinese expansion has been "driving Asian economic growth in general." Were China to cut back growth too sharply, he says, other Pacific nations could be adversely affected.

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