A Note Of Caution From The Global Gurus

After overestimating global bourses in '98, our pros are more subdued

When we polled a group of international investing pros a year ago on the outlook for global bourses in the coming year, they were sanguine on emerging markets and Japan and less enthusiastic about the U.S. and Europe. But instead of stabilizing, Asia's economic troubles spilled over to Latin America. Meanwhile, the strong U.S. economy kept Wall Street aloft, and euphoria surrounding the debut of the euro gave European markets a mighty boost.

Chastened by their lackluster performance, this year's global forecasters are more cautious. Most believe international stock indexes will stay close to current levels. The one major exception is Japan. At the end of 1997, the consensus of our experts was that the Nikkei index, then at 15,909, would end 1998 at 18,089. Only one pro, Wilbur L. Ross of Rothschild Inc., managed to come anywhere close to nailing the Nikkei at yearend 1998, with a guess of 15,000. Now, with the Nikkei hovering around 14,400, 4 out of 10 participants choose Japan as their favorite market and big turnaround play. Ross, whose prescient predictions made him our top forecaster for 1998, thinks the Nikkei will be back to 17,500 by 1999's end. The government is "finally beginning to deal with the country's problems," he says.

Ross's only major stumble was Latin America, which almost all our forecasters thought would do better. The consensus forecast for Mexico's Bolsa de Valores and Brazil's Bovespa indexes showed a 31% error. In our latest survey, most panelists predicted only moderate gains in Latin America. But bulls such as Wells Capital Management's Katherine Schapiro foresee bigger gains.

In Europe, most pros missed the mark. The biggest euro-skeptic of all was C.D. Turner of the investment research group I.D.E.A. He underestimated Frankfurt and London's gains by about one-third. Turner, who chose not to participate in 1998, also was the panel's worst forecaster, with an overall error of 23%.

For 1999, most pros believe that inflation and interest rates will decline globally. Although most of the world will experience slower growth, the majority of our pros still favor Europe and the U.S. The only doomsayer was Rothschild's Ross, who predicts that Germany's DAX index will tumble from its Dec. 11 level of 4536 to 1700. "The negative shocks in 1999 will be in the major Western economies," he says. Considering all the euro hoopla, that sounds outlandish. But after his 1998 performance, it may be that Ross knows something the rest of us don't.