World Stock Markets Ride Economic Growth

Buying international is suddenly the name of the game again in investment circles.

Americans, in particular, are pouring money into global stock markets. And investors the world over are enjoying an economic recovery that stretches from Japan to Europe.

"We could be about to see an acceleration of economic growth in the next year or so in Asia," including both China and Japan, says Richard Farrell, head of the Asia equity desk at Guinness Flight, a London-based mutual-fund group.

Asia is in the spotlight for two key reasons: First, investors are homing in on a region that embodies red-hot dynamism, with economies from China to Thailand growing faster than the world average. Second, and more important for now, is the pickup in Asia's largest stock market, Japan, as that nation emerges from a prolonged recession.

Europe, meanwhile, has good news of its own. A renewal of economic growth on the Continent spells new promise for those stock markets, despite concerns about Germany. And in the United States, despite some recent bumps, the stock-market trend has been generally upward following a stellar year in 1995.

The bottom line: Global stock markets show signs of spring promise.

Reflecting the moderate pace of global economic gains, the Morgan Stanley Capital International index, a barometer of global stock markets, rose about 2 percent in April, with Italy, Norway, Spain, Belgium and France out front. The index gained 6.6. percent in the first four months of the year. Morgan Stanley's emerging-market index gained 3.6 percent in April.

Japan has been a big success story in 1996, following its market doldrums in recent years. In early April, the Nikkei stock average rebounded to a four-year high of 22,282. Facing concerns about rising interest rates, the Nikkei has since dropped back slightly, to around the 21,100 level. But a number of analysts expect the index to reach 25,000 sometime this year. The Nikkei is up about 8 percent this year.

Continued economic growth and good relative stock values should boost Asian markets 10 to 20 percent by year's end, according to Salomon Brothers Inc., a New York investment house.

"We are seeing strong economic growth in Asia," says David Wyss, an economist at DRI/McGraw-Hill, an economic research firm in Lexington, Mass.

China and Germany remain big question marks, Mr. Wyss says, but Europe as a whole should post moderate economic growth this year. While the German economy has been stalled recently, Britain, Italy and France are all posting modest growth.

Several European bourses have trailed the US market this year, but some - including Amsterdam, Paris, and Milan, Italy - have outperformed New York.

Economic growth rates in Germany and Britain should rise in the second half of this year, buoyed by tax cuts and low interest rates, predicts the Business Council, a group representing chief executives of 100 large US corporations.

The giant US economy will grow 2.3 percent in 1996, and 1.6 percent in 1997, Wyss estimates. Some potential threats to stocks include rising interest rates and uncertainty about corporate profits.

Still, American investors continue to pour money into stock mutual funds both at home and abroad. Equity funds took in $23 billion in April, the fourth consecutive month that US stock funds gained more than $20 billion in net new money. Most of the April growth came from stepped-up flows to global and international funds, notes the Investment Company Institute, a fund-industry trade group in Washington.

The rising demand has mutual-fund companies busy creating new products with an overseas twist. Guinness Flight is a case in point. The firm has just launched two no-load Asian stock funds for American investors: the Guinness Flight Asia Blue Chip Fund and the Guinness Flight Asia Small Cap Fund. Last year, the firm's main Asia fund, the Guinness Flight China & Hong Kong Fund, ranked No. 1 among 95 Pacific funds tracked by Morningstar Inc., a Chicago research firm.

Still, some longtime market watchers urge caution in global investing, given foreign exchange movements and political instability in some nations.

Peggy Farley, managing director of financial house AMAS Securities Inc. in New York, prefers the strong US equities market right now. But she likes technology-linked firms in Scandinavia, France, Belgium, and to a lesser extent, Britain.