Nite's European exposure may turn out to be more than meets the eye:
Stock News - Sunday, 10/17/99 (From optioninvestor.com)
The Continental Shift: Managers Favor Euroland Investment
By Cindy Christ
With European economies on the mend, brokerages and fund managers are shifting money across the pond.
On Tuesday, Merrill Lynch and Co. Inc., the largest U.S. broker, said in a research report that it was increasing its Euroland weighting in its global portfolio to 18 percent from 15.8 percent.
Local interest rate concerns, rich valuations, and slowing economic growth are all factors making Euroland investment more attractive than the U.S., experts say.
"We believe now is the time to be more positive about European equities in a global context," the report said. "Unlike the U.S., European valuations do not look as demanding?. Evidence is building that European growth could surprise strongly between now and next summer."
The report cites two leading indicators for Germany, which is Europe's largest economy, to support the call. In August, new manufacturing orders grew more than 5 percent, while output rose only 1 percent. Merrill says this annual rate of change in the book-to-bill ratio bodes well for future production growth. Germany's ZEW business survey also supports future strength in manufacturing.
According to the report, Euroland growth could rise to 3 percent next year, compared to 3.3 percent in the U.S. Consensus estimates for growth in U.S. GDP are 2.7 percent versus 3.6 percent in 1999.
For the week of October 6, fund managers were selling U.S. equities in favor of those in continental Europe and Japan, according to the Merrill Lynch Gallup Survey for October, which summarizes responses from 267 institutions and 76 fund managers worldwide.
Overall, data show there were 11 percent more sellers than buyers of U.S. equities. In contrast, buyers of European equities exceeded sellers by 29 percent. In the U.S., confidence is even higher as U.S. buyers of European equities beat sellers by 32 percent.
The survey shows that most U .S. fund managers are pessimistic about interest rates, with 68 percent expecting rates to be higher next year.
The Euro also won out over the dollar as the most popular currency with major fund managers, as support for the dollar fell to a record low of 14 percent worldwide. Eighty-two percent of European funds said they preferred the Euro to the dollar. In the U.S., a record 64 percent of managers picked the Euro as their currency of choice. Only 21 percent of Japanese fund managers named the dollar over the Euro and the yen.
In terms of sectors, European funds are selling telecommunications stocks and buying electronics and electrical equipment shares as a conservative play on e-commerce growth. European managers also favor value stocks, computer software and hardware issues, and shares in construction and building materials.
Confirming Merrill's view, 96 percent of managers surveyed expect European economies to improve, with 39 percent expecting significant improvement -- a sharp increase from just nine percent in June.
European financial experts are also bullish on the continent, with some predicting a 30 percent rise in major European markets in 2000. In an interview with Barron's, Hansruedi Huber, chief of Julius Baer Asset Management in Zurich and chief investment officer of the closed-end European Warrant Fund, said he expects European markets, which have lagged the U.S. for some time, to beat the U.S. for the next three to five years.
Experts say that European markets will suffer from market declines in the U.S., presenting an opportunity to by shares at attractive valuations.
Mutual funds may be the easiest way to play foreign stocks, but investors also can gain exposure to Europe by investing in leading ADRs and U.S. multinationals that earn a significant part of their earnings overseas. For example, cyclical stocks like Caterpiller (CAT), the world's largest equipment maker, would benefit from a global recovery, but experts warn investors to avoid consumer products company, which this year have been poor performers. Technology stocks, advisors say, are replacing consumer staples as the best way to profit from global growth.
On Oct. 15, CAT closed up $0.44, or .79 percent, to $56.06 on expectations for improved earnings in 2000 due to improved growth in global economies.
Understandably, individual investors may want to wait for broader confirmation before betting on Europe. It's a good idea to monitor institutional money flows and how European indices are moving. If European markets keep rising, don't delay too long before diversifying your portfolio. This time last year savvy investors were mulling investment in Japan. Those who hesitated too long missed the boat on a 30 percent run up in the formerly battered Nikkei index.
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