Opportunity revives in far-away lands

Mutual Funds

Mutual funds

June 06, 1999|By Kathy Bergen | Kathy Bergen,CHICAGO TRIBUNE

After waiting cautiously on the sidelines as many foreign markets revived this spring, U.S. investors are finally getting brave enough to get back in the game.

"These markets have been going crazy -- some of them -- and the only mystery is why the public took so long to catch on," said Carl Wittnebert, director of research for Trimtabs.com, a Santa Rosa, Calif., firm that tracks flows of money into and out of mutual funds.

The firm estimates a net inflow of $4.9 billion last month into equity mutual funds that invest in foreign stocks or a mix of foreign and domestic stocks.

"It does appear to be a turnaround," said Wittnebert, noting that such funds experienced out- flows in eight of the nine months since the Russian crisis in August sent many markets into a tailspin.

The flows follow some impressive performance rebounds in ailing markets.

Scanning the globe now, economists and fund managers see compelling reasons for bullishness in various corners of the world, though, clearly, risks remain.

"We should see better times in Asia -- we've ridden through the worst," said Robert A. LaFleur, chief investment strategist at Northern Trust Bank in Chicago.

Positive signs, he said, include significant drops in interest rates, the return of trade surpluses in some nations -- notably South Korea and Thailand -- and improvements in industrial production.

Meanwhile, with economic recoveries still in early stages, fund managers see bargains littering the landscape.

"There were companies in Asia that deserved to be cremated, but investors trampled entire markets," noted Michael Welsh, co-manager of Oakmark International. "We spent the majority of the third and fourth quarters in Asia to find good companies that had been beaten up," he said, noting that stocks in some Asian and Latin American markets had collapsed 80 percent to 90 percent in U.S. dollar terms.

"Even though there have been nice rebounds from lows, I still think, especially in small caps, there are a lot of cheap stocks," he said. "There is a long way to go."

Emerging-markets guru J. Mark Mobius, manager of the Templeton Developing Markets Trust, also sees bargains in developing economies, and is heartened by increased capital flows into these markets and by steps, however small, toward economic reform and corporate restructuring.

Optimism about emerging markets in Asia is by no means universal. David Lui, manager of the Strong International Stock fund, says the market rebounds are outpacing any real change on the ground.

In South Korea, for example, overleveraged conglomerates have increased their indebtedness, he said. "This is not a sign of repentance to me," said Lui, who has restructured his fund since joining Strong a year ago.

Elsewhere in Asia, "a lot of companies need reform, restructuring, a selling-off of assets to pay down debt, and they never quite got there," he said. "As soon as the stock markets came back, they said they don't need to do this anymore."

As well, any number of factors could derail the revival in Asia, observers said, among them political unrest, devaluation of China's currency or an increase in U.S. interest rates.

Lui prefers Japan to the emerging markets in Asia, and built up his fund's exposure there from nothing at year-end 1998 to 18 percent of the portfolio now.

Then there is Tony Sagami, president of Austin, Texas-based Harvest Advisors, who suggests that investors grab profits from recent gains in Japanese stocks and get out of that market.

"It hasn't turned the corner yet," said Sagami.

Lui plans to keep his holdings in Japan at 18 percent for a while. "I'm not going to bet the farm on Japan," he said.

The bulk of his portfolio -- 70 percent -- is in Europe, where he projects an upward trend. The weakened euro should translate into stronger exports, he said, and the two interest-rate cuts by the European Central Bank in the last six months "will eventually manifest themselves in the stock market."

Yet others see European stocks, particularly those of large companies based on the Continent, as pricey by historical measures -- though not outrageous in comparison with U.S. stocks.

"Europe is attractive but a lot of the good news is in the price, whereas Asia is attractive but not so much of the good news is in the price yet," said LaFleur of Northern Trust.

Pub Date: 6/06/99

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