Europe and U.S. May Post Best Stock Gains: Review & Outlook
Bloomberg News
December 23, 1998, 12:58 p.m. ET
Europe and U.S. May Post Best Stock Gains: Review & Outlook
New York, Dec. 23 (Bloomberg) -- Never before this year have
benchmark stock indexes in the U.S., the U.K., France and Germany
fallen into a bear market, only to end the year with gains of
more than 15 percent.
''It was the best-ever comeback in the history of the Dow
and stocks globally,'' said Robert Froehlich, managing director
and chief investment strategist at Scudder Kemper Investments
Inc., which oversees $200 billion.
The Dow Jones Industrial Average advanced 14 percent in
1998, after going from up 18 percent to down 5 percent. The
Bloomberg European 500 Index erased a 35 percent advance before
roaring back to a 25 percent gain for the year in dollar terms.
Russia was the flash point for market declines worldwide, as
its August currency devaluation and debt default caused billions
of dollars of losses for hedge funds and banks and a worldwide
flight from risk. The benchmark Russian stock index dived 85
percent, after leading the world last year with a 98 percent
gain. Major Latin American markets sank 35 percent or more. Asia
was mixed.
The U.S. and Europe are the best places to put money in
1999, money managers say.
U.S.
''We should see 10,000 on the Dow in the first quarter,''
said J. Thomas Madden, chief investment officer at Federated
Investors Inc. in Pittsburgh, which manages $103 billion. That
would translate into a gain of 10 percent in the next three
months. ''The U.S. market has outperformed most, and there is no
reason for that to change,'' he said.
Madden's picks for 1999 include tobacco companies UST Inc.
and Philip Morris Cos., food company Archer-Daniels-Midland Co.,
Swiss drugmaker Novartis AG, France's Societe Generale SA and
German engineering firm Mannesmann AG.
While investors aren't expecting the heady gains that sent
the Standard & Poor's 500 Index up more than 20 percent for four
straight years, few are concerned stocks will slide so long as
interest rates remain low and the economy keeps growing. The
recoveries on both sides of the Atlantic came after the Federal
Reserve began a series of three interest-rate cuts in September,
followed by similar moves by central banks in Europe and Canada.
''The market does not generally fall when the Fed primes the
pump'' by lowering interest rates, said Henry Cavanna, a money
manager with J.P. Morgan Investment Management, which oversees
$300 billion. Cavanna's picks for next year are Sun Microsystems
Inc., Monsanto Co. and Kmart Corp.
Europe
Patrick Carisch, who helps manage $160 billion of assets at
Swiss-based Credit Suisse Asset Management, says European stocks
will gain 11 percent in dollar terms, compared with 8 percent for
U.S. stocks. European companies have more room to rise as they
streamline their businesses, said Carisch, who maintains a
neutral weighting on U.S. equities and is overweight in European
stocks. ''But we will not bet against the U.S. market.''
Europe's economies are expected to slow next year, and as in
the U.S., investors are counting on lower interest rates to stoke
consumer spending and increase corporate profits. The debut of a
single currency for 11 European countries could benefit stocks,
as it eases the flow of goods and services across borders. Banks
and other financial companies, such as UBS AG and Deutsche Bank
AG, could pace the gains.
Europe's big winner in 1998 was Finland, which advanced 92
percent in dollar terms. Nokia Oyj, which tripled this year,
accounts for two-thirds of the Finnish index. Indexes in Greece,
Belgium, Italy, Spain, France and the Netherlands registered 35
percent-plus advances, although they never regained their July
highs.
Asia, Latin America
In Asia, the big winner was Korea's Kospi Index, which
topped the world with a 98 percent gain. Investors aren't
expecting a repeat performance in 1999, because Korean companies
must work in an economy which shrank by 7 percent this year.
Japan, the world's third-largest equity market, is ready to
move forward in 1999 -- provided the government gives the
requisite push by adding deeper tax cuts and more incentives for
consumer spending to its planned 24 trillion-yen economic
recovery program, investors say.
The benchmark Nikkei 225 average is closing the year at
about 13,775, a 1.5 percent gain in dollar terms, after tumbling
below 13,000 in October for the first time since 1986.
Investors are likely to be reluctant to jump back into Latin
America anytime soon. Venezuela, Colombia, Mexico, Argentina and
Brazil were among the world's 10 worst performers this year as
plunging commodities prices hurt asset values and government
coffers. Next year, the region's markets probably will suffer
from high interest rates, low commodities prices and the worst
unemployment rate in a decade.
Money managers foresee another volatile year in 1999.
Richard McCabe, chief market analyst with Merrill Lynch & Co.,
expects the U.S. market to suffer a ''substantial setback'' late
in the first quarter as weakness in emerging markets squeeze
profit margins. That decline, he said, will presage the beginning
of a new bull market extending into 2000.
--Nick Olivari in the New York newsroom (212) 318-2849, with
|
