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YEAREND- Europe's growth seen luring ADR investors
Reuters Story - December 28, 1997 15:19
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By Ian Simpson
NEW YORK, Dec 28 (Reuters) - Europe's high growth rate and
relative stability -- in contrast to the turmoil in Asia --
should make it the top choice for investors in American
Depositary Receipts (ADRs) next year, analysts and fund
managers said.
Europe will stand out as U.S. markets struggle to move
higher and Asia works out its financial woes, they said.
"Investors are going to pay a premium for growth, and
Europe is the easiest place to find it," said Douglas Johnson,
global allocation advisor at Merrill Lynch Asset Management.
Latin America, meanwhile, will remain investors' top choice
among emerging markets as governments keep shedding state-owned
companies and opening markets up to international capital,
analysts said.
Wall Street also is likely to see a record-tying $20
billion raised in ADRs next year, up from an estimated $17
billion in 1997, said Jim Donovan, managing director for
depositary receipts at Citibank.
The rise will be sparked in part by privatizations and U.S.
demand for cheap, attractive stocks, he said. Local markets
also are too small to handle companies' demand for capital.
"We really believe this market is poised for significant
growth over the next four, five years because of these
macroeconomics," he said. ADRs allow U.S. trade of foreign
shares.
But the unraveling of Asian currencies and financial
markets this year will likely slow listings by Asian companies
in the U.S., said New York Stock Exchange Chairman Richard
Grasso.
"It just may take a little longer," Grasso said in an
interview aired on Reuters Financial Television last week.
"What might have happened in the first half of 1998 may have to
be deferred."
Europe could shed its reputation for rule-bound economies
with high unemployment and be the fastest-growing region in the
world next year, analysts and fund managers said.
"When did you last hear that?" Carol Franklin, a European
portfolio manager at Scudder, Stevens & Clark Inc, told a news
briefing this week.
She put growth in the region next year at just below three
percent, with corporate profit growth at 12 to 14 percent. This
year, European stock markets are up about 19 percent in dollar
terms, compared with 29 percent for the Standard & Poor's 500
index.
Franklin and others said Europe would be boosted in part by
rising consumer confidence, a boost in capital spending,
corporate cost-cutting and a drop in interest rates ahead of
the launch of the European Monetary Union in January 1999.
Top picks listed by analysts and fund managers among ADRs
and shares included banks and financial services because of
rising competition and consolidation in the sector, capital
goods, computing services and such telecommunications stocks as
Sweden's Telefon AB L.M. Ericsson .
Analysts mostly recommended shunning Japan and the rest of
East Asia until the area's financial troubles, such as tumbling
currencies and weakened banks, were ironed out over the course
of several months or the entire year.
"At some point Asia is going to be a screaming buy, but we
don't know where the bottom is," said Mary Ann Bartels, Avatar
global portfolio manager.
Investors in regional stocks should seek out exporters of
such commodities as pulp or palm oil that generate revenue in
dollars, not the weakened local currencies.
Geoffrey Dennis, global emerging markets strategist at HSBC
James Capel in London, said, "Asia is still an area to avoid.
The only place to be is China and Taiwan, where growth is very,
very robust."
Latin America remained tops among emerging markets because
of bright growth prospects despite the likelihood of a
recession in Brazil, the area's biggest economy.
The privatizations of state telephone and power companies
in Brazil, Mexico's high level of exports to the United States,
corporate restructurings and overall economic stability
underpinned the optimism.
However, the region remained vulnerable to shocks from Asia
if fearful investors decided to shun emerging markets
worldwide.
Gita Rao, a global portfolio manager at Colonial Mutual
Funds in Boston, said, "Among the emerging markets we're most
optimistic about is Latin America."
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