US Investor Dollars Again Going Abroad
More money is pouring into stocks of `emerging' nations
NEW YORK — WALL Street, like the Clinton administration, has rediscovered emerging markets.
United States investor dollars have been pouring into overseas equities this year, with an increasing amount once again flowing into emerging market issues. Emerging market stocks are equities traded in less-developed countries, primarily Asia and Latin America, though also Eastern Europe and Africa.
This stands in sharp contrast with late 1993, and even early this year, when investors bailed out of emerging market stocks following a downturn in share values.
The Clinton administration announced last week that it will place new emphasis on export trade with Asia and Latin America. This is a shift from the country's traditional trading focus: Japan. Over the next month, President Clinton plans to meet with Asian leaders in Jakarta, and with Latin American officials in Miami.
``US investors are becoming aware that many overseas nations have far higher growth rates than the United States,'' says Hildegard Zagorski, an analyst with Prudential Securities Inc., an investment firm based in New York.
Among mutual funds tracked by research firms such as Morningstar Inc. in Chicago, many of the top-performing mutual funds during the third quarter of 1994, which ended Sept. 30, were emerging market funds. Several Latin American funds performed especially well, reflecting high growth rates in that region.
Every month this year, individual investors in the US have directed one-third or more of their purchases of equities to foreign mutual funds, according to a new study by investment firm Bear, Stearns & Co. in New York. And during the first half of 1994, US investors purchased overseas securities equal to $27 billion net value, according to the US Federal Reserve. That is a steady increase from the pattern in the early 1990s.
``We're absolutely seeing more money moving into foreign stocks, including emerging market securities,'' says Elizabeth Mackay, investment strategist for Bear, Stearns. The US government is seeking expanded export trade; private firms are seeking profitable overseas ventures; and US pension funds are seeking higher returns. They're all looking abroad at emerging nations, she says, and the pattern will likely intensify in coming years.
EARLIER this year, it looked like the ``bubble'' had burst for emerging market stocks, says Mark Madden, portfolio manager of the Pioneer Emerging Market Fund in Boston. Market indexes had tumbled. But slowly the stocks began to post earnings gains in the middle to third quarter of this year. Despite their volatility, long-range returns remain favorable, Mr. Madden says.
``These stocks are probably not for short-term investors,'' he says. ``But if an investor has a three- to five-year horizon, emerging markets are a no-brainer. You are talking about [national] growth rates of 6 percent to 10 percent, compared to 3 percent or so in industrialized nations such as the United States.''
The risk in emerging market stocks can be minimized through diversification, Madden says. His Pioneer Emerging Market Fund, launched in June, has assets of $22 million, he says. Another fund, the India Fund, begun at the same time, has $18 million under management. The fund portfolios contain about 60 diverse companies each. Emerging Market Fund companies come from South Korea, the Philippines, Hong Kong, Thailand, Argentina, Mexico, Chile, and Peru, among others.