January 1997

A new year offers new chances for business and national and international political developments. But as we look to the year it seems more likely that we may get to much of it all. It will be the year of volatility.

Financial review

The United States of America

1996 was the year of unimaginable growth in the stock markets. The Dow Jones Industrials reached the 6000 mark even before the end of the year. We even might suggest that the 7000 mark is within reach in the first quarter of 1997.

The U.S. economy is looking very good, the growth in profits will not be that good as they were in 1996 but there is still growth potential. The economies of Europe, Asia and the emerging countries are also still on the growing cycle, or they will get off in 1997. But more important there is an abundance of capital which has to be invested somewhere and the psychology of the market and traders is still positive even when there are sometimes stories about a correction.

On the other side the inflation is negligible, the growth of the economy is stable and the value of the leading currencies is in accordance with their economic strength.

In the end the story about stocks will be positive even when there will be a correction of 10 %. Which will probably happen in May/June or in the fourth quarter in October. After the correction the stocks will make up the losses within one or two months.

The stocks at the several U.S. stock markets are getting a little expensive but there are still some companies which promise impressive potential in 1997. The companies with the best potential are in the finance, tele-communications, pharmaceutical, aerospace, oil/energy, IT and bio-technology branches and some retail chains.

Western Europe

The European stock markets will follow the U.S. lead in the bull market. The European markets will possibly get an extra boost if the national governments can keep their spending under control which will be to the benefit of the EMU and this will be good for the growth of all economies. The outperformers of the European markets will be the automotive, oil/energy, pharmaceutical, retail and food and beverage branches and some banking/insurance houses.

Asia

The Asian area has to be divided into at least three groups if we consider the most important countries and markets. First, Japan, the Japanese economy will show some growth in 1997. But the internal situation is still very complicated and full of problems. The branches who will show a good performance in 1997 will be the companies which are heavily involved in the export market, like the automotive and electronics industries. Where as the finance industry is still in very bad shape and will first show improvement if the bad loans of the eighties are written off and the finance houses restructured.

The second group are Asian tigers, like Korea, Taiwan and Singapore. The economic growth of these countries have been less then a decade ago. It will show if they can cope with this situation which is more familiar to the economic situation of the socalled first world. The resource mobilisation plan has to be replaced with a invention-technology plan. But for the coming year the economies and the associated stock markets of the Tiger countries will continue to grow. A diversified portfolio in the leading conglomerates and technology based companies is highly recommmendable.

The third group of companies are the want to be Tiger countries of Asia, like Thailand, Indonesia, Malaysia, the Philippines and even China. These countries showed some impressive growth figures in 1996. But the most advanced of these countries, Thailand, was growing lesser then expected. The investments into Thailand declined also. The infra-structure and national economy are run into disarray. If Thailand does not take appropriate measurements to solve them they will run into even more difficulties. Investments into Thailand should be avoided.

Indonesia is a little better, but the national laws and even more important, the racial problems and the large inequalities between the wealthy and the poor, can create a situation where investments could vaporize very quickly. But for the risk-loving investor there are some interesting companies which will show some exceptional growth in 1997.

Malaysia and the Philippines are the most promising of this group. The economies of those countries show a respectable growth figure and they have not reached yet the development of the Tiger countries. The finance, export-consumer products, low-technology IT and tourist industry should promise the best profit chances.

And finally China. China the country with the most promising market will show to be a bubble. The industry is still highly inefficient and has produced the last two years witout making any significant sales. The big difference between development in the coastal regions and the the more inside regions, inflation, corruption, the growing number unemployed and the inefficient state-system will destroy any improvements which are made by the few succesfull companies. And China still has some large problems with the Tibetian and Turkish/Islamic peoples which live in the far west of China. All those factors combined mean uncertainty about the future and a brake on development, which are both bad for the stock market.

The only way to make some profits in China is through direct investments or joint ventures to take advantage from the very low wages and to stay far away from the independence movement in the west of China.

Eastern Europe

The emerging markets from Eastern Europe, Russia and South America. The emerging market will continue to attract the intrest of the investment manager / investor. The markets still promise a large potential for profits. The prices of a lot of stocks are still undervalued, but be carefull there are a lot of bad stocks around.

In Eastern Europe, the Polish, Chech, Hungarian and to lesser extent the Baltic stock markets look very promising. The economy of those countries are fully recovering from the socialist adventures. A lot of companies are privatised, the countries are attracting foreign investments, the markets are not yet spoiled with products and the people are strongly in favour to be connected with western Europe, which garantees the continuation of the development process.

The most interesting branches will be the car/automotive, energy, construction, communication and the retail market.

Russia

Russia on the other hand could become the biggest prize, but a lot of problems have to be overcome to reach that. The internal structures of the state and most of the companies is still underdeveloped to western standards. While at the same time the purchasing power of the average Russian has not increased where by the sales and growth of the Russian companies have lagged behind. The strength of the Russian state has also diminished because of the inefficïent tax system. Wages and pensions could not be paid and necessary purchases could not be made.

To solve all these problems will take time but eventually it can be done. None the less all these difficulties, investments into the listed energy, mineral trading companies, technology research houses, and special steel/metallurgy manufacturers could be a profitable case.

South America

The situation in South America is looking much better. The best performing markets are those of Argentina, Brazil, Chile and Mexico. Those countries have more or less there spending and inflation under control. The economy showed in the last years a steady growth and investments into the American “tigers” proved to be profitable. There is still enough potential for the coming years. The electronics, construction, tele-communications, energy and retail branches will show some exceptionnel growth this year.

The other South American states like Peru, Venezuela and Ecuador lag behind in the development and growth of their national economies. All those states have internal problems from querilla/terrorist activities to inflation and lack of investment opportunities. Because of the internal problems the countries are seen as “banana-republics” which is not beneficiary to attract foreign investments.

India

Other countries where investments might be interesting are India and South Africa. India still has a lot of problems which are originated out of their own peculiar economic system. But they are slowly improving it. The advantages of India is in their people and their education system. A few of the large conglomerates and a number of software development companies offer a very good return on your investments. But the government of India has to stimulate the economy by improving its infra-structure, education for all, creating a better law system and keeping down ethnic violence.

South Africa

South Africa is also offering some very good investment possibilities. Even when South Africa is struglling with high unemployment and high inflation its economy is growing. And because of the growing home market and world economy there is still a lot of growth potential. The economy is already very well developed which makes the improvement of the economy easier with a near garantee for success. The finance, construction, technology and mineral extraction and process industry industries are the most promising for 1997.