Where The Returns Are
Most U.S. investors haven't exactly been rushing to get into foreign markets this year. Europe was restructuring, but without great haste. Japan was moving even more slowly. Asia might be recovering from its financial crisis, but who wanted to be suckered again? Latin America survived Brazil's currency devaluation, but who knew when the region would start to grow again? If a U.S. economic slowdown or interest-rate hike didn't drag down global markets, the millennium bug would. Better to just stay home.
Mmm, maybe not.
Major foreign markets have been on a tear recently, with many beating Wall Street by miles. The Standard & Poor's 500-stock index was up 14% through Dec. 1. Japan's market jumped 48% in dollar terms, and France's leaped 8%. But it's emerging markets that have really soared: South Korea is up 99% and Mexico 62% (table). Investors who braved Russia's rambunctious market have more than doubled their money from January to December. Emerging markets have returned 48% so far this year--the best performance since 1993.
And though the markets could tumble, some analysts think the trend is just beginning. "This is the first leg of a major recovery," says Mark H. Madden, who runs a $185 million emerging-markets fund for Pioneer Investment Management in Boston.
What has happened? First, most stocks are relatively cheap. Mexican companies trade at 12 times expected 2000 earnings, vs. 31 times in the U.S. Interest rates are declining. Economies like South Korea, Singapore, and Taiwan could expand by 6% on average next year as fears of a U.S. slowdown subside. In short, investors feel pretty good. "Money that had been on the sidelines is trying to find its way back into emerging markets," says Robert J. Pelosky Jr., a strategist at Morgan Stanley Dean Witter in New York.
Still, choosy fund managers are hunting for companies that can flourish in the New Economy. Many are well-known names that plan to upgrade phone and Net services: Korea Telecom, China Telecom, Telefonos de Mexico, Brazil's Telebras. India's software makers, such as Satyam Computer Services Ltd. and Infosys, the first such company to list on Nasdaq, are favorites, too. They are major suppliers to U.S. companies. "They are internationally competitive and reasonably priced on a global basis," says Vincent McBride, who manages a $100 million Warburg, Pincus Asset Management Inc. fund in New York.
If a company doesn't have a tech edge, it has to be in good enough shape to at least benefit from the recovery. Josephine Jimenez, a senior portfolio manager for Montgomery Asset Management's $320 million emerging-markets fund, likes Yang Ming Marine Transport Corp., an international shipper based in Taiwan. Since Asia's growth is largely export-driven, demand for sea transport has increased. And Beijing has just allowed the company to begin shipping directly to the mainland.
Global growth is also pushing up commodity prices from platinum to iron, but none more than oil. That accounts for Russia's surging stock market. Russia isn't to everyone's taste. But if even it is doing well, confidence in the global economy must really be high.
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