Investors the world over heat up markets in the Far East
While Wall Street waffles, trying to figure out which way interest rates and Reagan administration economic policies are going, stock markets in the Far East are ringing up spectacular gains. This is attracting stock buyers from all over the world.
"The Pacific rim countries are a very attractive growth area today," says Alan R. Ackerman, director of foreign research at Herzfeld & Stern, a New York brokerage house. "They have increasing economic opportunity and a growing determination to make their economies work."
An example of this determination can be seen in Japan, where Mr. Ackerman noted that despite recent upheavals in the government, the nation's basic commitment to economic and business development remains strong.
"The focal point of the Pacific basin is Japan and the Japanese economy," commented William Holzer, an analyst with the Scudder International Fund.
And in Hong Kong, Mr. Holzer said, the stock market is heavily based on real estate and property-owning companies. In that land-scarce protectorate, property values -- and thus corporate values -- have risen dramatically. In addition, "the capitalist ethic is still very much alive," he said. The corporate tax rate, he added, is only about 17 percent. While stock values on the New York Stock Exchange grew 20.4 percent from 1970 through March of this year, stocks on the Hong Kong exchange grew over 740 percent and the equities in Japan increased 170 percent, according to a survey by Capital International.
Some analysts, however, believe that such fast run-ups in prices mean most of the stock bargains have gone.
Another Pacific nation that has been generating increased US investor interest is Australia. With relatively low energy costs and abundant natural resources, Australian industry has been growing rapidly of late, Mr. Holzer said. The nation has undertaken some $30 billion of new capital projects, a figure that is about one-third of its gross national product.
The move by US investors to Far Eastern stock markets is part of a recent general trend by Americans to diversify their portfolios internationally, says Reim van der Does, Vice- president of international research at Drexel Burnham Lambert Inc.
"more and more people are realizing that further diversification [to other countries] does reduce risk," he said. "This is more of the European way of investing. The Europeans have been doing it for 20 years." By contrast, Mr. van der Does noted, as recently as five years ago few Americans had even started talking about overseas investment.
And in the recent years, American investment overseas increased quite rapidly , a recent report by the Securities Industry Association stated. In 1980, an association report said, trading by US investors in foreign markets increased 77 percent over 1979 and net purchases were up 177 percent.
Until this year, much of this growth benefited European stocks, as many US investors retraced their roots and made their purchases across the Atlantic. But that trend has been reduced somewhat of late, analysts agreed.
"The European economies are in the midst of what is probably their worst recession since World War II," Mr. Ackerman asserted. "The problems in Europe are now very pronounced." Among these problems he included a lack of adequate limitations on government spending and continually increased deficit financing.
One of the costs of these policies, he said, is rapidly increasing unemployment. "European unemployment is a serious strain on the social fabric there."
Another reason for declining American investment in Europe is the recent sharp rise in the dollar against foreign currencies. "People are beginning to feel the strength of the US dollar is the fulcrum to turn investments back to the US," Mr. Ackerman said.
"One of the key factors in investing is the strength of the currency in which you're paid back."
Mr. van der Does noted that while the Japanese yen rose 3.7 percent agains the US dollar in May, compared with May of last year, and 16.1 percent in April, the West German mark was down 24.1 percent in May and 13.3 percent in April, again compared with the same months in 1980.
The stronger US dollar does make some European investments more attractive, the analysts note. They would include companies that are active exporters outside Europe, sending large quantities of goods to North America and the Far East.these would include some auto manufacturers and chemical companies.
In addition, the experts point out, the stronger dollar means an investor is getting more equity for the money when a stock is purchased.
"But that's assuming that if you buy these stocks the problems in those countries can be solved before you lose a lot of money," Mr. Ackerman said skeptically.
Instead of heading for new highs, as seemed possible earlier, the stock market lost its nerve when interest rates stayed high and the Federal Reserve stuck to its inflation- fighting guns on monetary policy. After studying above the 1,000 level for several days, the Dow Jones industrial average lost 10.09 points, closing at 996.19.
Even though the nation's money supply has fallen in recent week, the Fed indicated it would maintain a tough policy by allowing the federal funds rate, at which banks charge one another for loans, to rise as high as 2 1/2 percent.