Cautious Investors Should Find Good Values Overseas

SOME money managers investing globally see the prospect of somewhat better returns in world equities markets. Both the United States economy and stock prices, they note, are rebounding. They even see a potential for stock price gains in parts of Europe and Asia.

But 1993 is not yet shaping up as a landmark year for global investing. Too many economies are still in recession. However, interest rates in several nations are inching downward. Inflation continues to be relatively low in many countries.

All major US stock indexes have posted gains lately. But the Dow Jones industrial average is still off about 5 percent from its 1992 high of 3413.21 points, recorded on June 1. Three broader measures set new highs last week - the Standard & Poor's 500 index, the New York Stock Exchange composite index, and, perhaps most importantly, the Nasdaq Composite Index, which measures smaller companies and technology firms. The Dow Jones Transportation Index has been surging; the index is considered a key gauge to

the future direction of the economy and the stock market, since transportation stocks move up when shipments of goods start to increase, or are about to rise.

"This [stock] market rally is definitely going to continue into 1993," says Gene Jay Seagle, director of technical research for Gruntal & Co., an investment house.

Yet selected European and Asian markets could actually outperform the US, according to Peter Lamaison, president of IDS International in London. His portfolio is "actually slightly underweighted in the US market," he says, with Britain, Japan, Spain, Switzerland, France, and such east Asian markets as Hong Kong, Singapore, South Korea, and Taiwan showing promise.

There are impediments to market growth in these nations, he says. Many European stocks have reflected continent-wide economic difficulties. France, for example, will need to get its interest rates down to ensure a market climb; Hong Kong faces obvious political challenges, as it prepares to revert to control by China later in the decade; Japan still has enormous structural problems, including a depressed real estate market.

Mr. Lamaison is not sanguine about the hard-currency nations of Europe, particularly Germany. The costs of reunification still outweigh economic benefits from the east-west merger, he says. Industrial output in the east remains low; German interest rates are still far too high to allow the economy to rejuvenate.

"Germany is in an industrial recession now, and unless rates fall sharply, there doesn't appear to be room for a quick [economic] turnaround," says Steven Nagourney, an analyst with Shearson Lehman Inc. High German rates are helping to hold down corporate earnings across the continent, he says. These high rates have attracted huge flows of capital from abroad. As German rates gradually move downward, some of that money (held in bonds and certificates of deposit), can be expected to shift into equities, t hus pushing up stock prices.

Japan's roller coaster market has been showing resilience in recent weeks, although the market is still down about 25 percent for the year as a whole. In August the Nikkei stock average sagged to 14,309 points. But the market has climbed back, and is now in the low 17,000 point range. Much of the rise is attributed to the government's announced $88 billion spending program to stimulate the economy. Still, one analyst says "caution" should still be the watchword for investors looking toward Japan.

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