Cheerier Prospects For Foreign Stocks Seen for New Year
NEW YORK — Overseas markets generally cheered along with Wall Street at the outcome of the US election. Many analysts, particularly in Europe, see the division of power in Washington between the two major political parties as ensuring continued modest economic growth in the United States.
That, in turn, should help overseas stock markets, since multinational firms will be able to compete for US consumer dollars. An expanding US economy is important at this time because of sluggish global economic growth in general, says Cynthia Latta, an economist at DRI/McGraw-Hill, an economic consulting firm in Lexington, Mass.
"It is time for US investors to start looking into international equities once again," says Rao Chalasani, chief investment strategist for Everen Securities Inc. in Chicago. He recommends markets in Britain, Germany, France, Italy, Australia, and Canada. Since the US dollar appears to have peaked or is close to peaking, against other major currencies, that means that there is no longer reason to forestall buying international stocks, Mr. Chalasani says.
Stock markets are up throughout much of Europe and Asia,. But when adjusted for currency exchange-rate shifts, the gains abroad have trailed gains in US markets and in Canada. (Canada's Toronto Stock Exchange 100 Index, like the Dow Jones industrial average, is up about 21 percent for the year so far.)
Next year, global economic growth is expected to accelerate slightly to 3 percent, up from 2.7 percent this year, DRI/McGraw-Hill reckons.
In Europe, growth is expected to be 2.5 percent in '97, up from 1.3 percent in 1996; growth in developing countries will move from 5.3 percent this year to 5.7 percent next year; and Latin American growth will go from about 3.2 percent this year to 4.8 percent in 1997. But growth in Asia will dip slightly, from 6.6 percent this year to about 6.2 percent next year. But that will still be "strong, and sustainable growth," says an international analyst at DRI. US economic growth is expected to remain in the 2 to 2.5 percent range in the months ahead.
So far this year, overseas markets generally have provided lukewarm returns to investors. International equity mutual funds have lagged behind US funds. European funds have done the best, with funds up slightly more than 18 percent through Nov. 8, compared with gains of about 17 percent for US funds.
For the quarter ending Sept. 30, both emerging-market and general international funds fell, according to Morningstar Inc. in Chicago. The only region to do modestly well was Europe, up 1.66 percent.
In October, Canada posted the highest gains among all stock markets, up 7.7 percent, according to Morgan Stanley Capital International. Canada has been cutting interest rates. Among emerging markets, Venezuela was the leader, with Brazil and Columbia also doing well. The weakest performers in developed nations were Japan (down 6.8 percent), Italy (down 5.7 percent), and Singapore (down 3.5 percent).
How much should an individual have invested in international stocks? Mr. Chalasani says up to 15 percent of a person's total portfolio.