Bearish? Not Our Pros

A BUSINESS WEEK panel prefers overseas markets to the U.S.

After a monetary crisis in Thailand threatened to melt down world markets, baffled investors got a crash course in risk. That's why BUSINESS WEEK decided to take its annual Fearless Forecast survey global. We asked experts at banks, brokerages, and mutual funds to tell us how markets will perform in 1998--and to name their favorite stocks.

A panel of 15 pros agreed that the volatility in emerging markets is likely to change the way U.S. investors view the world. Says Wilbur L. Ross Jr. of Rothschild Inc.: "Institutions will become more risk-averse, reversing their recent mad rush into obscure foreign markets." According to our pros, this bodes well for U.S. equities. On average, our panel predicts that the Dow Jones industrial average will hit 8567 by the end of 1998, up a modest 8% from its Dec. 15 level of 7922.

TEAMING UP. Most pros are bullish on Europe. Henrik Strabo, American Century's vice-president for international equity investments, believes the advent of a common currency will bring more consolidation in financial services. Sandy Nairn, director of global equities at Templeton Investment Management Inc., likes British manufacturers. Many such outfits earn a big slice of profits from exports, so they are out of favor because of the strong pound. "Many are trading at around 10 times 1997 earnings with growth rates in the low double digits," says Nairn, who sees these companies doing even better if sterling weakens.

But serious bargain hunters are likely to be found scouring the battered bourses of Asia. Even though economic growth in the region is predicted to slow, many experts think Asia is a value investor's dream. For example, David R. Mannheim of MFS World Equity Fund is finding companies with little to no debt that trade at a fraction of their pre-crisis price-earnings ratio. One is New Straits Times, a newspaper group in Malaysia that is "oversold."

Some London forecasters see Japan coming out of its eight-year bear market. Gilbert de Botton, head of GAM Global Asset Management, Michael Hughes of Barclays BZW, and Rustom Jehangir of Malabar Capital all believe the Nikkei stock average will climb above 21,000, vs. 15,909 on Dec. 15. Barton Biggs, chairman of Morgan Stanley Asset Management and a leading Wall Street bear, thinks Tokyo and Hong Kong "could have substantial rallies in 1998. They have fallen so much that most of the bad news must have been discounted." If investors are fleeing overseas markets now, will they turn out to be disappointed? Tune in this time next year when we find out how our global forecasters have fared.

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