Emerging Markets

SACRAMENTO -- Why should America's public pension funds -- the life savings of America's state and local government workers -- be invested overseas, when better returns are often available from investments in our own cities?That's the kind of disturbing question that Philip Angelides, California state treasurer since last January, has been asking.It turns out that CALPERS -- the California Public Retirement System in which Mr. Angelides plays a key role -- has $35 billion invested in 48 countries worldwide.

I'm a psychologist and know I'm way behind in saving for retirement, so I can't afford to lose anything in my 401(k). When I read about international stocks crashing, I looked at my 401(k) and saw that my Dodge & Cox International fund had lost $5,000. Should I pull my money out right away? I have about 40 percent of everything I have in it. -- C.C., Chicago It's true that international stocks have been getting battered lately, but that doesn't mean all foreign stocks. Nor does it mean you should dump everything you have invested outside the United States, especially not the Dodge & Cox International fund.

Individual investors who once envisioned global investing as a growth portion of their portfolios are feeling the pain. Emerging markets have been hit hard in the financial downturn. There's really nowhere to hide. Even though the worst might not be over as we look to 2009, some experts believe the situation provides opportunities to increase international investments because much of the rest of the world will revive before the U.S. does. "International stocks have been hit worse than U.S. stocks, but most of that difference has been due to the strength of the U.S. dollar," said Allan Nichols, equities strategist and editor of Morningstar International Investor in Chicago.

The average American investor will own equities from stock exchanges in once unthinkable places such as China, India, Russia and Eastern Europe.It's simply a matter of time before this theory turns to reality,according to two veteran mutual fund managers. The overwhelming momentum of new economies and their huge populations, coupled with the desire of U.S. investors to diversify into faster-growing markets, will make it happen.Until then, there are plenty of other emerging markets with powerful growth rates to keep you busy if you're willing to assume some risk.

NEW YORK -- A worldwide economic slowdown was under way even before Saddam Hussein rolled into Kuwait. Since then, the sharp rise in oil prices has sliced the top off virtually every stock market in the world.For investors in mutual funds that buy foreign stocks, the slide is a buying opportunity. Looking ahead, the growth potential of Japan, Germany and many other countries appears to be twice that of the United States.But foreign markets, even those in industrialized Europe, offer far less protection for investors than Americans are used to. The "emerging markets," including Thailand, the Philippines and Brazil, can be crocodile swamps.

Legg Mason Inc. agreed yesterday to buy a Boston investment manager for up to $120 million, giving the Baltimore company an important entree to the international equity markets.The deal to acquire Batterymarch Financial Management Corp. also would allow Legg Mason to expand for the first time beyond its portfolio of domestic equity investments. Assuming the merger is completed in the next few weeks, as expected, the company expects to launch its first international mutual fund within two months.

INVESTORS WHO have squeezed all they can out of domestic stocks might want to throw some of their winnings into the international market.Financial experts advise that a portion of every portfolio should contain some international stocks. And Joseph C. Williams has just the country investors should consider. It isn't Japan, Germany or the United Kingdom, but Brazil.Williams is director of emerging markets for Batterymarch Financial Management Inc., the Boston-based subsidiary of Legg Mason Inc. He's responsible for a team of six employees who manage about $1.3 billion in assets for Batterymarch, which Legg Mason acquired in January 1995.

Mohamed El-Erian's message at the Morningstar Investor Conference in Chicago last week could be boiled down to one simple, dangerous statement: "This time it's different." But if the global market conditions are as different as the co-chief executive and chief investment strategist at bond fund giant PIMCO contends, then the real concern for investors is why the proposed tactics to deal with "this time" feel so much like the same old thing. In a wide-ranging talk that covered everything from consumer finances to monetary policy, El-Erian said the markets' current problems are not the proverbial "random events," but rather a sequence of events - including the return of significant inflation and the realignment of global economic power - that lead the market to a new reality.

They aren't sexy and they often don't get a lot of attention, but bond funds are back -- at least for now. Responding to a sluggish job market and what seemed to be a slowing economy, bonds took off in the third quarter, returning nearly 3 percent on average and beating 91 percent of all equity funds. The performance handily beat the returns of diversified equity funds, which lost 2.76 percent. They held the largest chunk of investors' money, some $2.7 trillion, by the end of the quarter Sept.

Heavy overseas trading losses and flagging demand for its underwriting expertise could force BT Alex. Brown Inc.'s New York parent to lay off hundreds of employees, analysts said.Bankers Trust Corp. has been reeling since it disclosed $350 million in trading losses as of Sept. 1, primarily in Russian markets, and warned that it expects a third-quarter loss, prompting a lower rating for its debt.At the same time, its stock price has fallen by about 60 percent since April and its business of taking companies public -- Alex.