Overseas markets outshine Wall Street
The world's other stock markets refuse to let their superior performances get lost in the glare of the Dow's rocket ride toward 2,700. Americans, who are occasionally accused of being parochial, are apparently noticing.
``The world is intensely interested in the foreign markets. It's just America catching up with the rest of the world!'' says Christian Wignall with a laugh. Mr. Wignall is the chief investment officer of GT Global Growth funds in San Francisco.
Last week the Dow Jones industrial average closed at 2,685.43 - up a record 93.43 points for the week. But despite the Dow's performance and the dollar's little burst of strength, there are many reasons to invest overseas today, says Richard Allison, a vice-president at Rowe Price-Fleming International in Baltimore.
``In the long term,'' Mr. Allison says, ``the American position doesn't look so good. There are structural problems, particularly the trade and federal deficits. We don't see the dollar strengthening.''
Through July of this year, the United States stock market ranked 12th in performance out of the 19 countries that Morgan Stanley Capital International tracks, says Mark Sladkus, a vice-president at Morgan Stanley & Co. in New York.
Mexico, the best-performing market this year, has experienced 217.3 percent growth since January, and 26.3 percent growth in July alone. Mexico has a small stock market and has benefited from securities buybacks and rising oil prices. By comparison, so far this year the US market has grown 30 percent.
Stocks in Singapore and Malaysia are also hot, Mr. Sladkus says. ``These countries are tied to the dollar,'' and their exports are more favorable than Japan's as the yen strengthens. In addition, Japan has been moving production facilities to the Pacific Rim countries.
Last year, Americans sent more than $1 trillion to foreign markets, according to the US Commerce Department. In 1985, Americans had invested $949 billion overseas. In another measure of foreign investment, a study by Salomon Brothers finds that from 1984 through 1986, US mutual funds investing overseas tripled their assets, from $5 billion to $15.9 billion.
The US used to represent 50 percent of the world's stock market capitalization, Sladkus says, but at the end of July the figure had fallen to 38 percent. The American economy is also growing more slowly than some foreign economies, he adds.
Yet the traditional dominance of the US market continues to encourage fund managers to invest in the United States. ``Some fund managers may think that by concentrating in large markets they'll get better performance,'' observes Sharon Li, who follows the northeast Asian markets for Merrill Lynch in New York.
This isn't always the case. The ``smaller markets'' of Singapore/Malaysia and Hong Kong rank second and seventh for the year in Morgan Stanley's international stock market trends. ``The Asian markets have high economic growth and high corporate earnings growth,'' Ms. Li says, adding that many fund managers have changed their thinking about smaller markets.
Overseas investment provides diversity and stability. Allison of Rowe Price-Fleming International says that for long-term returns, studies indicate that a portfolio's assets should be allocated 70 percent domestic, 30 percent international. But these analyses bump into a more traditional view: ``You have people saying, `Well, I'll need dollars for retirement, so why put my money in anything else?''' he says.
The analysts and fund managers who agree that foreign markets merit American investments tend to like the Pacific Basin, the United Kingdom, Australia, New Zealand, and Canada.
``We favor the Pacific Basin countries, excluding Japan, where we would underweight,'' says Sladkus of Morgan Stanley. ``Also, the Netherlands is an inexpensive market, with a price-earnings ratio of 13.7, while Europe's P-E is 16.7, and the world's overall is 24.2.''
Mr. Wignall of GT Global puts Britain on his list of favorites. ``It's a developing country, with its privatization, deregulation, strong pro-business government,'' he explains. ``Spain, although a smaller market, is following a similar trend.'' He says that undervalued currencies make Australia, the US, Southeast Asia, and Canada competitive. GT Global Growth manages six funds with assets of $120 million.
Allison also likes Hong Kong, where the currency has gone down with the dollar and exporting companies are picking up. He is cautious, however, about the Japanese and West German exporting companies, but says that in Japan he favors domestic companies, such as public works, retail, and real estate. He likes Germany for long-term investments.
Veteran mutual-fund manager John Templeton follows an investment approach that is now heavily weighted to America. ``You have to buy where everyone is trying to sell,'' explains the Nassau-based manager of six funds with $9 billion in assets. ``There are more bargains in America, Canada, Australia, New Zealand, and the Netherlands. Prices are too high in Japan.''
His mutual funds are invested two-thirds in the American markets. ``This is the most we've had in any one nation,'' he says. ``We are always looking for a bargain.'' He has been investing for 47 years.
Many analysts agree that Japan should be underweighted. Li of Merrill Lynch says, however, that an investor ``can't get out of that totally, because it's such a big market. I'd invest in Japanese domestic stocks, like insurance or retail.''
Concerning a major correction in the overweighted Japanese markets, Li says she doesn't necessarily expect the market to fall soon: ``There is so much liquidity in Japan now that will help sustain the level or push the market even higher.''