"Stop the world. I want to get off."
That's what many investors felt like shouting during an often troubling 1998. Now they must gird themselves for a final year of this century that may offer more uncertainty.Not to worry, say the global experts. Though shaken, our world remains in one piece. European companies look like the best bet to prosper right now, but one should relax and go with the best companies that feature international prospects, regardless of what their home country may be.
"The developed markets, namely Western Europe and the U.S., were able to ignore what was happening outside their borders until last September, when everyone started seriously worrying about the possibility of a global recession," notes David Lui, portfolio manager of the Strong International Stock Fund. "But it really wasn't the end of the world after all, because the Federal Reserve started cutting rates and that brought the bulls back."
Lui considers it a "50-50" bet as to whether the Fed will cut interest rates again at its Dec. 22 meeting. The only thing holding the Fed back might be concerns over a cut leading to an unwanted stock market bubble. Prospects in continental Europe are extremely bright, Lui believes. Meanwhile, Hong Kong and Singapore would benefit greatly from further worldwide reductions in interest rates because their economies are tied to banking and real estate. Japan, on the other hand, is still "hopeless," in his opinion. He's none too optimistic about Latin America, either, since Brazil's financial problems could carry over to the entire region if they deteriorate too significantly.
"Much of 1998 globally was a mess due to emerging markets, but the theme going forward is that Europe will be extremely strong, boosted by the European Monetary Union," predicted Frank Minerva, senior vice president and equity product manager for PaineWebber Inc. "What we've termed the 'Eurozone' has a population slightly greater than the U.S. and a gross domestic product that rivals the U.S."
There will now be much keener competition among the European nations because they're competing in a single currency (the new euro), Minerva expects. Meanwhile, lower interest rates would definitely lead to more European money being shifted into equities.
"Right now, we're finding more opportunities to invest in Europe than in the U.S., due to the high level of the U.S. market," agreed Shawn Lytle, London-based vice president and a portfolio manager of the J.P. Morgan Global 50 Fund. "Yet the markets are becoming more expensive nowadays, and it's becoming a little harder to find the investment opportunities."
There remain, however, plenty of fine choices, he says. He's not overly worried about volatile world markets, since volatility creates opportunities to invest. He's primarily looking for the most attractive stocks in specific sectors regardless of what countries they call home.
For example, shares of America's own IBM, a company that was deeply troubled just five years ago but is now firing on all cylinders, are admired by both Lui and Minerva. Big Blue is expected to derive considerable income from a resurging Europe, and thanks to the firm direction of its leader, Louis Gerstner, should also become a big player in e-commerce. Yet its stock price is still being unfairly punished for corporate miscues committed back in the early 1990s, the analysts believe.
Here are other top global choices from this country and abroad, all available on U.S. exchanges either as stock or American Depositary Receipts (ADRs) that represent overseas shares:
Lui favors shares of Finnish cellular phone maker Nokia, which should benefit from a quadrupling of the European cell phone market by the year 2004; and Hong Kong's conservatively run Hang Seng Bank and real estate developer Sun Hung Kai Properties, both expected to receive a boost should interest rates go lower. He's also fond of Philip Morris, which has much more certainty about its future due to the recent government tobacco settlement; Spain's Banco Santander S.A., whose stock price was overly damaged by concerns about Brazil's finances; and Britain's Cable & Wireless Plc., a play on the future of the cable television industry.
Lytle likes Argentinian oil company YPF S.A., selling at a discount to its rivals; Sweden's Autoliv Inc., a global competitor in the airbag industry that is rapidly increasing its market share; software storage firm EMC Corp., which should have strong earnings growth next year; and MCI Worldcom, which is developing an edge in providing service to Internet users. His other recommendations include Rupert Murdoch's Australian-based international media firm News Corp., currently building a network of European sports teams with accompanying television stations; South African gold consortium Anglogold, a defensive play; Monsanto, which features a strong new product called Celebra to treat arthritis; Bank Austria, a sturdy regional play; and quality U.S. banking firms BankAmerica and Washington Mutual.
Minerva suggests stock in Switzerland's Nestle, a global food company that makes a solid long-term core holding; Switzerland's Novartis A.G., one of the world's top pharmaceutical companies; and Germany's SAP A.G., the enormous software company whose stock was hit recently because profits from its Year 2000 work weren't quite as much as expected.
Three U.S. firms that should especially prosper from strong sales in Europe, Minerva concluded, are Compaq Computer, biomedical device maker Medtronic Inc. and pharmaceutical powerhouse Warner-Lambert.
Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, "Successful Investing," 98 Henry St., Dept. 183, Brooklyn, NY 11201 or by e-mail at successinv@aol.com.