Bourses abroad are mirroring Wall Street with brisk run-ups
| New York
There is quite literally a whole world of stocks out there. Of course, that's not an easy message to convey to American investors who rarely look beyond the ubiquitous Dow Jones industrial average, which is based on the well-known issues of the New York Stock Exchange.
To its credit the Dow hasn't strayed far from its recent record high. Last week it slipped just 12.32 points, closing at 1,356.52. The broader market averages showed signs of catching up with the Dow, much to the delight of market bulls.
But New York is far from the only market on this planet. The stock exchanges of Japan, Britain, Germany, Australia, Sweden, Belgium, and Holland are also at or near record highs. And consider this:
Of all mutual funds, the champion this year, through Oct. 17, is Fidelity Overseas Fund, according to Lipper Analytical Services. And for the last 12 months, the top spot goes to PaineWebber's Atlas Fund (a mix of US and foreign equities). Atlas is up almost 40 percent vs. a 12.5 percent rise in the Dow.
For the first nine months of 1985, six of the 10 top-performing mutual funds have had significant foreign holdings.
True, these funds have received a major exchange-rate boost from the dollar's decline. But there's no denying the strength of the underlying markets.
And if you're looking to diversify your holdings, as many pension fund managers are required to by law, investing in foreign stocks would seem almost obligatory. In 1974, American stocks made up 70 percent of the world market capitalization. Today, half of the total world market capitalization is in foreign stocks.
One of the duties of foreign mutual fund managers is educating the public to the plethora of opportunities beyond the Dow. ``I get calls asking me, `Now that the dollar's dropped is the game over?' '' says Gavin Dobson, manager of the Kemper International fund, which is up 24 percent this year. ``Well, there are 17 markets we trade in. It's a very big world out there.''
Kemper's Glasgow-based portfolio strategist, Michael H. J. Parlett, adds: ``A lot of US investors view international markets too simplistically. They view it as one industry, with each market as an individual stock. Mathematically, that's not even a realistic view. We can rotate to different industries and stocks in each foreign market, just as you rotate out of utilities into technology stocks here.''
So be it. Then, which stocks in which markets are hot?
West Germany has been first on most foreign stock buyers' lists. Says Merrill Lynch's Europe analyst, John Abbink: ``The German stocks across the board are running happily on the back of an extraordinarily strong economy. Capital goods orders are going through the roof. Consumer spending is picking up. And on top of the dollar slide, the market has been hitting new highs almost every day for most of the summer.''
Abbink suggests, however, that the trading in Frankfurt is reaching a speculative frenzy. ``It's a bit toppy. I'd like to see it come back about 5 to 10 percent. But it's still a good market,'' he says. He recommends buying the electrical equipment-maker, Siemens, if the price softens.
The Kemper International fund has a large stake in Germany: 18 percent in equities and 13 percent in bonds. Mr. Dobson says that on a price-to-earnings basis, many German stocks still ``look cheap.'' He holds Hochtief, the second-largest German construction company, in addition to Commerzbank and Dresdner Bank.
In fact, Kemper also holds the three largest Swiss banks and a bank in Holland as well. Manager Dobson likes these European banks because they have a low-exposure to third-world loans.
``The European economy,'' Dobson adds, ``has turned the corner. As the economy picks up, loan activity picks up and bad loans taper off.''
In Holland, the market has held near record levels all year. Abbink at Merrill Lynch thinks it's starting to move again. ``The last couple of weeks money has been flowing into the large caps. They're taking profits in Germany and switching to the Dutch market.'' Rotating among the various foreign markets is a common practice.
In Japan, the Nikkei-Dow average of 250 stocks has recently backed off a bit from its record 13,055.52 high posted earlier this month. Domestic stocks -- construction, real estate, retailing, utilities -- have in many instances doubled in value since the spring.
To help the foreign-trade imbalance, Japan has been under pressure to stimulate imports and spending at home. ``The stock market has speculated on the possible impact on the domestic economy of changes in government policy,'' says Wallace H. Offutt Jr., Merrill Lynch's Asian markets analyst.
Money went to domestic issues from the export sector. Japanese blue-chip exporters -- including Hitachi, Toshiba, NEC -- were hit by the strengthening of the yen, US trade barrier threats, and a cyclical earnings slide.
Kemper has 19 percent of its fund in Japan, with a bias toward domestic issues, on the assumption spending will pick up there. ``Japan has got to do something to address the trade imbalance,'' says Dobson.
Mr. Offutt at Merrill Lynch agrees, but says the package of economic policy changes announced two weeks ago was ``extremely disappointing.'' He's predicting a sizable correction in the domestic sector and a flight back to the blue chip exporters, which are near two- and three-year lows.
Contrarians might be interested to know that the strong Italian market has had a setback over the Achille Lauro hijacking and subsequent political fallout.
``[Bettino] Craxi,'' Abbink says, ``has given Italy the most stable government since Mussolini.'' He expects the Italian market to rebound in coming months as the political turmoil subsides.
Finally, the largest market in Europe, London, has basically mirrored the US averages. The Financial Times 30, the equivalent to the Dow industrials, has hit new highs recently, while the broader indexes have languished.
London has been ``boosted by a lot of takeover activity and rumors. Mostly rubbish,'' says Abbink. ``Overall, the market is not doing as well.'' Chart: Interest Rates. *Yields; Source: Bank of Boston.
Percent Prime rate 9.50 Discount rate 7.50 Federal funds 7.75 3-mo. Treasury bills 7.22 6-mo. Treasury bills 7.40 7-yr. Treasury notes 10.45* 30-yr. Treasury bonds 10.04*