With the loud crash of mutuals in emerging markets, it may be time to dive in


January 23, 1995|By JANE BRYANT QUINN

NEW YORK -- The best time to invest is when stocks are down and the press is singing their requiem. By that measure, you need to take a look at the mutual funds that buy emerging-market stocks.

Much of the Pacific Rim had a terrible 1994. Hong Kong, Malaysia and Indonesia dropped 20 percent or more in dollar terms. In Latin America, Argentina and Mexico took a serious hit -- doubly so after Mexico devalued the peso last month.

The average emerging-market fund was down 11 percent for the year and also looks sick in early 1995.

Some of the big emerging markets may have even further to fall. No one knows where the bottom is.

But this I know: The funds are a better buy today than they were in 1993 when some $4.5 billion rushed into them. I'm not a market timer, as readers know. I don't consult spirits or manipulate charts to guess whether stocks will rise or fall. But I make one exception: when prices crash in a major market, I pile in.

To many investors, these exotic funds are too new and untested to try. But in fact, they represent a return to an older style of investing, says George Foot, senior partner of Newgate Management Associates in New York.

The nationalist politics of the 20th century caused a good half of the globe to shut its doors to foreign investment after World War I. Before then, European investment trusts typically owned securities in dozens of developing countries -- including that unstable, war-ridden, undisciplined nation called the United States of America.

As an example, take the London-based Foreign and Colonial Government Trust Co., founded in 1868 and worth $2.5 billion today. It sank huge sums into the exotic securities of India, Alabama, Brazil, Missouri, Turkey, Georgia, Uruguay and Santa Fe.

Today, "history has restarted," Foot says. In recent years, free- (or free-ish) market economies have expanded to cover most of the globe. Growth rates of 7 percent to 9 percent are plausible for modernizing nations, vs. 2 percent to 3 percent for mature ones.

"Investing in Asia is a must," says Michael Stolper of San Diego, who evaluates money managers for clients.

He calls Latin America a riskier bet because of its history of self-sabotage. But panics, scandals and political convulsions are routine in the less-developed world. So far, the years when stocks went up have more than repaid long-term investors for the shock years when they dropped.

In general, advisers say that 20 percent to 25 percent of your stock investments should go into plain-vanilla places like Europe, Canada and Japan. Another 5 percent to 10 percent should be in exotics.

Most investors, however, have put no more than a toe in, Stolper says. And they probably invested during sizzling 1993 when emerging markets soared.

If you want to experiment with developing high-growth countries, now is a much better time. You may not get repaid this year. But if you hold five years, today's prices will probably look famously cheap.

Some thoughts on bottom fishing today:

* Consider well-diversified funds.

San Francisco money manager Kurt Brouwer prefers funds that buy Europe and Japan as well as the exotics. A favorite: Warburg Pincus International Equity. Or try funds that invest in new markets worldwide, not just in Asia or Latin America. Ken Gregory of the No-Load Fund Analyst likes Montgomery Emerging Markets and Pimco Advisors Institutional Blairlogie Emerging Markets (available to noninstitutional clients through a discount stockbroker). Single-country funds are the riskiest buy.

* Don't dither over each day's news.

Buy some shares and forget them for a few years. The conventional wisdom says that you should invest small amounts over several months, to minimize your loss if prices slip further. But these markets can turn around on a dime and gradualists may miss the bounce. It's pretty safe to invest a lump sum when you buy during panics, and plan to hold.

* Don't quit when you're behind.

If you hold through a crash in your fund's shares, you might as well stick around for the rebound.

* Know thyself.

Don't buy risky securities with money that you need to live on. Stay away, too, if you hate riding speedy elevators down. You'll fail in emerging markets funds unless you can really take price drops in stride.

Jane Bryant Quinn is a syndicated columnist. Write to her at: Newsweek, 444 Madison Ave., 18th Floor, New York, N.Y., 10022.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.