World Recession Makes Global Investing Tricky
Mix of US and overseas stocks is best investment option, analysts say. PLAYING THE MARKETS
FOR global investors, the message is loud and clear: The United States, Latin America, Southeast Asia, and the smaller nations of Europe - such as Spain and Portugal - will lead the global economy in 1993, with the best gains later in the year.
International investing has become increasingly popular in the US, with brokerage houses developing hundreds of mutual funds earmarked to global stocks. Yet, 1992 year-end stock data, including most overseas stock indexes, suggest 1993 will be challenging for global investing.
"Selectivity" when buying stocks is especially important this year, says David Thomas, senior vice president of international investing for Putnam Investments, in Boston. Mr. Thomas adds that it is wise to maintain "a balance between having assets in US stocks as well as overseas equities," given the recovery under way in the US.
Case in point: The US component of Putnam's Global Growth Fund was boosted slightly last year, to reflect the improving American economy. Putnam expects the 20 percent US component of the fund's stock portfolio to rise even more.
The shift toward a larger US stake underscores the uncertainties about overseas economic growth. In the 10-year period through Sept. 30, 1992, the Putnam Global Growth Fund shot up about 456 percent, making it the top gun of global growth funds. But given the global recession, Thomas sees the strongest prospects for international investing in a relatively narrow band of nations, including Thailand, Malaysia, and Singapore, parts of Latin America and Europe, and the US.
The challenge for international investors is to "make it through the first half" of 1993, argues Greg Smith, an official of Prudential Securities Inc.
European economic growth is expected to be virtually flat in 1993, says Paula Hobson, an economist with DRI/McGraw-Hill, a consulting firm in Lexington, Mass. The European Community's march toward unity and higher economic growth is proving elusive.
The main European stock exchange performed fairly well in 1992. The Swiss Market Index led the Continent, up 26 percent; London also did well, with the FT-SE 100 Index up 14 percent for the year, far above the Dow Jones industrial average (4.2 percent), and Standard & Poor's 500 index (4.5 percent). Frankfurt's DAX Index dropped 2 percent.
The combined economic growth rate for Europe's "big four" - Germany, France, Britain, and Italy - is expected to be a negligible 0.3 percent in 1993, Ms. Hobson says.
The best economic growth will come from smaller nations, including Spain and Portugal. Still, DRI expects German interest rates to start to drop by mid-1993, which will help rev up the continental economy. Thus, economic growth for Britain, Germany, and France "should be above 2 percent in 1994." Italy will come in with slower growth.
Asian growth this year is expected mainly in the southeast, says Kathleen Molony, an economist with DRI. Fighting recession, Japan is expected grow at "between 2 percent and 3 percent" in 1993. That is probably not enough to boost many Japanese stocks. The Nikkei Stock Average fell 26 percent last year.
But South Asia is another story. Hong Kong, despite political uncertainties about China's future control, should grow about 5 percent this year and next; S. Korea will come in around 7 percent in 1993, and rise to 8 percent in 1994; Taiwan will be in the 6 percent range both years; Malaysia will be in the 8 percent and 7 percent ranges. And China will grow in the 9 percent and 8 percent ranges, Ms. Molony says.