Investors who want to be more active than simply selecting an international equity index fund face three broad choices: to invest in a country which is promising, an industry which looks enticing internationally, or firms with good prospects, according to Terence Moll, an economist at Citadel Investment Services.
The upside potential from international equities looks more exciting than bonds, particularly since world growth in the next few years is likely to be strong, Moll says.
This was echoed by Chrissy Keen, executive director and senior portfolio strategist at Fidelity Investments International, who addressed intermediaries in Cape Town last week during a presentation on Standard Bank’s new international products.
She said the consensus view for the next 12 months is that there will be modest growth and modest inflation in most countries. “That kind of background is favourable for the equity market, though markets have already factored this into prices.”
John Phillips, chief executive of Templeton Asset Management’s local subsidiary, told the Saturday Argus/Seeff Trust Investors Club that the current bull market in the United States had now lasted for six years – two years longer than the average length of a bull market.
However, he said this was not a strong reason to avoid investing internationally. It would be a mistake to stay out of the international market for this reason.
Bear markets were a test of good fund managers, who should continue to out-perform, while in the long term the markets performed solidly.
Moll said the experience of the last few years provides a clear answer – get the country right. If you succeed, you will do better than if you get the industry right, or even the right shares.
Keen explained Fidelity’s current view on US, European and Far East markets.
US markets have risen to new highs this year but the biggest gains have been in large rather than small companies. Since May, small companies have started to pick up, partly because they seem to offer better value than the large companies.
Japan has been a disappointing market but recently has started to bounce up, most significantly owing to changes within Japanese companies, which are starting to improve returns on capital and show greater appreciation for their shareholders.
In Europe, too, European companies are facing more competition and are gearing up to become more efficient.
In South East Asia better earnings growth is expected in 1997 than in 1996 as exports start to pick up and Hong Kong is expected to weather the transition to Chinese rule smoothly.
Moll’s recommendations were also positive for the Far East. He said at present the economies of Japan and Korea, which have been restructuring, look like excellent value. Indian markets should perform well in the medium term and for those with less appetite for risk the turnaround in continental Europe should provide opportunities.
In its June Investment Newsletter, BoE NatWest Securities said a global investment strategy at present would favour holding less in US equities, and bonds in general, but more in Japan and emerging market equities. They suggested starting to build up commodities and resource-related investments now.
“Moreover, the prospect of relatively constrained overall returns in world investment markets suggests that South African institutions and individuals need not rush to utilise fully the recent further relaxation of exchange controls,” BOE NatWest Securities said.