Categorie archief: Reports 1997

May 1997, I

May 1997, I

May 1997

Investing in South-East Asia

Introduction

After more than a decade of double digit growth figures, the economies of South-East Asia are showing a slow down. Where you could nearly invest randomly in every company a decade ago, things get more difficult now. There are only a few companies left on each market which continue to promise a respectable growth figure on the short-term future

In this report we will look into the possibilities of the following countries; Thailand, Malaysia, Singapore, Hong Kong and Indonesia.

Thailand

The Thai economy is in a bad shape, the local currency is devalued, the solvency is downgraded, the infra-structure is collapsing under heavy traffic, the industry is experiencing over capacity and the financial markets experience a near collapse because of bad loans and of a bad internal organisation.

Thai stocks are also this year not on our list as an investment opportunity. But in two or three years the situation will probably be improved considered the financial resources available to the Thai government and if the problems with the infra-structure, industrial organisation and pollution can be solved.

Malaysia

The Malaysian economy is showing a better performance, they have not yet reached the development level of the other “tiger” countries, like Singapore, Taiwan and Korea, and therefore possess still some nice opportunities.

The reasons behind the growth possibilities are the natural resources available to Malaysia, the space in legislation, the rising internal demand, the government supported projects which have just started or are near to implementation and finally the cost of labour in relation to their skills.

There are also a number of stocks which are looking very profitable. The sectors interesting to invest into are finance, oil, property and technology related. In the financial sector for example Public Bank and Malayan Bank, in the oil sector Petronas Gas, in the property sector Shah Alam Properties and Sime UEP Properties and in technology/engineering Telekom Malaysia and Utd Engineers.

Singapore

The economy of Singapore is one of the most developed in the region. It is still a good place to establish the regional headquarters to serve the South-East Asian market. But because of the high prices of real estate and labor it is only usefull for management, R&D and high tech production.

The profitability of the Singaporean stock market is not going to show the growth of the preceding decade. The Singapore stock market is to expensive and the industry can not gain growth anymore just by increasing the input of labor and money. Instead it has to infuse technology and lean organisation to induce growth and this is much more difficult to realise.

The stocks which will probably survive the downturn best are the Development Bank for Singapore and Singapore Airlines. But this is no guarantee, to many large investors are slowly reducing their holdings into the Singaporean stock market, and this will in the end hurt all stocks very badly. To enter the stock market again will be profitable if the market has lost a least 15 % in value.

Hong Kong

The financial and trade center of Asia is awaiting the reunion with China, this is a possible inducement to further growth or, which is rather unlikely, the collapse of a prosperous economy. Hong Kong is possibly the most promising market of Asia. The financial and trade skills of Hong Kong combined with the availability of cheap labor and the immense market in China is giving the Hong Kong stocks a chance to realise double digits growth figures.

            With limited risk it seems a good idea to invest in some of the most promising stocks at the Hang Seng. Especially the financial sector and large conglomerates seem to offer the best growth chances. We expect for example in the near future a lot of Hang Seng Bank and HSBC in the financial sector. Other prospects are Hutchinson Whampoa, New World Development, Shangri-La Asia, Shun Tak Holdings, Sino Land and possibly Swire Pacific.

Indonesia

The economic development of Indonesia is showing some very good numbers in the previous decade. It has become an attractive place to invest some of your funds. But as usually there is a big “but”. Beside of the economic achievement there are large problems between the ruling regime and the opposition party, with the different ethno-religious groups in the country, the independent movements in several parts of the island rich country, the lacking infra-structure, the unequal distribution of wealth and the accumulation of financial and political power around the president and his family.

Indonesia is as said before a country with a lot of opportunities, it has a lot of natural resources, a large potential market, a relatively skilled workforce and an innovative industrial sector which is continiously improving and expanding itself.

The stock market in Jakarta is therefore an image of the situation of the country. On one side it is a booming and very promising market but on the other side the internal problems and the lack of infra-structure outside the island of Java is going to impede the growth of the market and it will probably destroy the gains which are realised before when there is an outburst of religious or political violence.

If you are willing to take a risk the best investment opportunities are given by the exploitation of the natural resources, the food/basic industry companies and the conglomerates.

Conclusion

            There also still a number of options left to invest, Hong Kong and Kuala Lumpur are offering the best possibilities. The economy of both is in very good shape and even more important there are a lot of possibilities in the future.

The most risky are the stocks in Jakarta, the economy is growing and the stocks seem to offer a profit over the next years. But this can be very easily destroyed because of internal unrest or to little investments in the infra-structure which is an imperative to growth.

The worst options are offered by Singapore and Bangkok. Singapore because of the expensive market and lesser economic growth. And Bangkok because of a slow down of the economy, organisational problems and bad loans in the finance sector and a nearly collapsing infra-structure.

Standaard
April 1997

April 1997

April 1997

Securing your investments – The Zaïrean dilemma

Securing your investments

The U.S. stockmarkets showed their volatile behaviour in March, the underlying fundamentals are allright but the pressure of a rise of the interest rate and the disbelieve of a number of traders in the potential of the markets turned the market in the first weeks of March negative. The certainty of an intrest rate rise made the markets getting stronger, a lot of listings stabilised and a few grew.

The coming month, or even couple of months, will be a time of defensive investing in the U.S. and expensive markets in Europe. The most promising markets for next month will be Germany, Italy and some emerging markets in South America. Especially South America is promising to be the most profitable in 1997.

To maintain a profit in your U.S. portfolio you shift towards a number of international established firms and some technology companies. With these companies in your portfolio you should be able to counter the downward trend and even make some profit. In the financial sector we continue to advice Citicorp, J.P.Morgan and American Express, we expect some bigger growth in the next month from South Western Bell and GTE in the tele-communications sector, where as it could be very interesting to buy into Compaq, Motorola, Sun computer, Sun microsystems, Lucent technologies and Honeywell in the IT sector. Other interesting companies to invest into are Procter & Gamble, diversified companies like General Electric and Textron, pharmaceutical companies like Pfizer and Eli Lily, we also still like retailer Sears and further companies like Exxon and Boeing.

In the Asian markets we are still considering Japan as a market to return to better times in the third or fourth quarter of 1997. On the Nikkei 225 we are still holding to companies like Sony, NEC and Matsushita in the electronics sector, conglomerates like Mitsubishi Corp. and car producer Toyota.

In Europe times are getting better for markets like Germany and Italy. In countries like the Netherlands and the United Kingdom the markets get a little overvalued and are very much influenced by the happenings in the U.S. This means the stocks will behave faster and more intense to changes in the economy. In the U.K. British Aerospace, British Airways and British Petroleum continue to offer some growth potential where as companies like Cadbury Schweppes and Grand Metropolitan and Barclays Bank in the financial sector offer the best growth chances.

The best investments can be maid in Germany, the companies there are in a very good position and are still busy restructuring themselves to operate efficiëntly on the world market. In the automobile sector BMW and Daimler Benz, in the financial sector Allianz, Deutsche Bank and the Dresdner Bank continue to offer growth. The same is true for MAN, Siemens, Bayer and conglomerates like VEBA and VIAG. Finally the biggest gainers in Germany will be the steelproducers Krupp-Hoesch and Thyssen if their coöperation is to work out well.

In the very expensive markets of Switzerland, Novartis is going to show some impressive growth. The CAC 40 in France is also listing a few companies which benefit from the economic “boom” in the world. The companies all belong to the consumer products/retail industry. Companies which promise to offer some profit are ELF-Sanofi, LMVH, L’Oreal, Carrefour and the entertainment company Canal+.

But with all your investments you should be aware that the markets will be very volatile and a major correction of 5 till 10% in the coming two months will be very likely. Although proper portfolio management should minimise your losses or even avoid them.

The Zaïrean dilemma

The conflict in Zaïre is still going on and there seems no political solution possible on the short term. The military advance of the ADFL forces of Laurent-Désiré Kabila against the government forces of president Mobuto seems to be unstoppable. And possible negotiations between the two sides will be very complicated because of the divergent interests of the two parties. Mobuto wants to keep the power and eventually share it. Where as Kabila wants to reform the government which is impossible as long as Mobuto has a more or less important role to play in that same government.

The ADFL, Alliance of Democratic Forces for the Liberation of Kongo-Zaïre, is using the same strategy as the querilla forces in Uganda and Eritrea have done who are now in power. It is a strategy of encircling the government forces but give them a way out, it is also avoiding nearly all risky military operations, limits casualties on their own side and simultaneous to the military advance a civilian government structure is introduced who has nothing in common with the old political structure. The people have, according the theory of Kabila, to be involved in governing the country, they have to feel responsible for rebuilding their nation. It is a way to rally people behind an idea and get support for your policy.

The forces of Kabila nearly control all areas east of the river Zaïre and they will soon take over the mineral rich provinces of Shaba and upper Zaïre. This will be a boost to the war-chest of Kabila and consequently another nail to the coffin of the power of Mobuto.

The political system of Mobutism drove the country to one of the most impoverished of the world. And this government initiated looting and corruption destroyed all possibilities of Zaïre to gain some wealth for their people.

The victories of Kabila are based on the popularity of Kabila, he promisess some hope for a decent future for the Zaïrean people, and the bad state of the warfighting capabilities of the national army.

The question remains what will happen, does Mobuto give up power, is Kabila capable of conquering the whole country and more important can he keep Zaïre together and finally what is the real power of Kabila in de ADFL?

It seems unlikely that Mobuto can maintain his position as president, he has no means to keep up that position, the bureaucracy and his army are to weak and divided to do so. It is just a matter of time before his fall will be a fact of live.

If Mobuto has stepped down it will become increasingly difficult for Kabila to keep his forces together. The main aim of the uprising has been eleminated and internal power policies will start their own live. Every “leader/war-lord” in the ADFL, in Zaïre and their possible foreign backers in Uganda and Rwanda will try to gain as much power as possible. And the mineral rich provinces might try to gain independence. The wish for independence has already surfaced several times and every time foreign forces, under UN flag or not, were necessary to destroy the independence movement, for example, in Shaba province.

The important question is; does Zaïre remains one country? After the step down of Mobuto the fighting will cease. The simultaneous program of setting up a civilian structure in territories which the ADFL has conquered will help Kabila to keep Zaïre together but you need more than a governmental organisation to do it. It is up to Kabila to enforce quickly a common cause to keep Zaïre united. He has to offer a program which makes sense to all leaders that a united Zaïre is beneficial to all sides/political players. At the same time he has to getaway from the influence of the support which has been given to the ADFL by “friendly” neighbours like Uganda and Rwanda. All those parties have their own policy which is likely not to be in the best interest of Zaïre.

Another internal problem is that Zaïre is in essence a very wealthy country if you consider the mineral resources and its agricultural possibilities. Therefore it will be very tempting for the new rulers not to do the same thing as the Mobuto regime has done in the former decades, use the resources of Zaïre to boost their own wealth. And what is even more dangerous to the unity of Zaïre, and especially to power of the ADFL of Kabila, are the ambitions of the several provinces and local leaders to establish their own little kingdoms.

The ghost of dissolution is closing into Zaïre, the ADFL has a lot of different foreign supporters and it has to rely largely on a Tutsi led army to secure their powerbase. The “new” rulers has to resist the temptation not to exploit the country as done by the Mobuto regime. And finally the several provinces must be kept in the fold of Zaïre. It can be concluded that a change is necessary in Zaïre and the first governmental actions of the ADFL look very promising but the inherent problems associated with the ADFL power-structure must be kept under control. Otherways could the victory of the ADFL in the end become the splitting factor of Zaïre. And that is absolutely an unwanted development.

 

Standaard
March 1997

March 1997

March 1997

Is it time for a correction?

After nearly two years of continued growth on the major markets of the world the questions arises: “can this go on forever. shouldn’t there be a major correction? Ofcourse no market can grow forever, every bull market has to turn sour at some time. But in the long run all stock markets are in comparison with other investment opportunities the best performers over time and consequently the best way to secure a major part of your portfolio.

All major markets are identical in that the stocks get, through the impressive growth, overvalued in price-earning ratios and yield ratios. As most price-earning ratios are moving into the twentieth range and the yield ratios into the two to two point five percent. The earnings are therefore largely dependent on the growth of the stockprice.

These high ratios could become a limit on the growth of the stockprice but this is also highly dependent on the development of the economy. The underlying fundamentals of the stocks are still in very good shape, the inflation is low, state expenditures largely under control, the value of the leading currencies in balance, the demand after products is showing a steady growth with an inclination to faster growth, the overhead costs are limited because of the heavy restructuring of the last decade and finally the large financial reserves promise a lot of opportunities to commit research and development to secure the future.

A fundamental and technological analysis of a number of stocks from the leading stock markets like NYSE, Nikkei, FTSE and Dax are showing a positive indication towards further growth of the stockmarket. Most of the companies possess still growth potential which means a rising stockprice. The only disadvantage is the psychology of the markets because of the incredible growth and the fear for a rise in intrest rates makes the traders get nervous.

In the United States the following stocks are very promising J.P. Morgan, American Express and Citicorp in the financial sector, Sprint, GTE and Southwestern Bell in the telecommunications sector, Intel, Compaq and Dell in the IT branche, Sears and Kroger in the retail business and pharmaceutical companies like Merck & Co, Pfizer and Eli Lily.

Nikkei is also listing some companies which will show a good performance. These companies are largely aimed at the export market and take advantage from the rising value of the US dollar. Electronic gigants like Sony and NEC, conglomerates like Mitsubishi and the car producer Toyota.

The companies which will show a good performance in the UK are British Aerospace, Britsh Airways, SmithKline-Beecham and BP. But hte British market is volatile because of the possible rise of the intrest rate.

The German markets are also in a winning mood. Even when the growth of the economy is disappointing a number companies still see a chance to make some money. Especially the international oriënted companies like BMW, Daimler Benz, MAN, Siemens, Hoechst Marion Roussel, Bayer, Allianz and the Dresdner Bank and a number of smaller socalled Ländesbanken.

There is in general a positive trend visible in the stock markets of the world, especially if the whole year is taken into consideration. The positive economic development, the low inflation and the abundance of available capital are a nearly garantee for growth.

Israel versus Syria.

After the Israeli elections from last year the peace process nearly collapsed because the Likud party with their right wing coalition were opposed towards the land for peace agreements of the former government. It took time, pressure and a new conference and following treaty start up the process again. But the newly elected government got a more favourable deal from the Palestinians.

The negotiations with Syria came to a virtual standstill, the land for peace deal was unacceptable for Netanyahu government. The Syrians should according Netanyahu first sign a peace treaty or at least disarm the Hezbollah in Lebanon as a sign of good will before there could be any further negotiations over the withdrawal from the Golan heights.

This kind of diplomacy worked well with the Palestinians who had no other option than to find some sort of agreement with Israel. The Palestinians had to save their new established area of control and to do this they need the help of Israel. The Syrians on the contrary want the Golan back but they are not in the same need as the Palestinians to get what they want. They have time on their side.

The recent rumours of a possible war between the two is according our analysis unlikely, even when the Syrians have moved troops, formerly stationed around Beirouth, more to the south closer to Israel. These troops are hardly capable, according their structure and training history, to launch an assault on Israel. They are only there, in cooperation with the Hezbollah in Lebanon, to put pressure on Israel to force them back to the conference table.

The Israeli defence forces are far superior to the Syrian forces, all military forces of all Israeli neighbours combined are not enough to break the Israeli hegemony, the Syrian military forces have lost the support of Russia and all aquisitions new and spare parts have to be financed by hard currency and against market prices.

The inventory of the Syrian armed forces is largely outdated, the training of the forces is lagging behind in mobile warfare, to much time is spend on internal security, and in case of any conflict the Syrian forces are not able to support themselves, they are in need of foreign supplies of spare parts, ammunition etc. they simply can not afford a war with Israel which takes longer than a couple of weeks.

The Israeli forces are also not able to wage a long war but considerably longer than their opponents can. The military hardware is in very good condition and regularly supplied with new high tech equipment. And most of the used hardware, can be supplied and taken care of by their own industry. And finally the training of the Israeli forces is superbe, it is even better now the military is less involved in policing and guarding the West bank and the Gaza strip.

The Syrians in cooperation with the Hezbollah can try to pull the Israelis into actions which force the Israelis to expose themselves without a chance to clearly beat one of the two parties. On the battlefield the Syrians do not stand a chance but they can “easily” gain a political victory. In the end, this can be more beneficiary to get what you want.

The Israelis on the other side maybe want to frustrate the peace process to a certain extent, they want to gain as much as possible without giving up to much territory. A lot of the actions undertaken by the government is giving prove to this hypothesis.

A lot of promises have been made by the Israeli government but most of them are ignored or delayed. Any start to new negotiations are frustrated by one of the two sides before they get a chance to take off. The Israeli forces and the Mossad, the intelligence service, continue with their operations in Lebanon and abroad, and not only terrorists are the target of those operations. Especially the timing of the publication of those operations reveals a process of destabilising the negotiations.

This policy of brinkmanship have been very profitable for the Netanyahu government but it certainly has its limits. The international community get fed up with the delaying strategies, they want a firm commitment that the peace process is implemented as agreed to into the several contracts.

The margins to act get lesser for Israel, their best chance is to avoid any open conflict with the Syrians or the Hezbollah, military they can win but politically they can only loose. The Hezbollah has to be countered with defensive means, intelligence and covert strikes with the garantee that no civilians get hurt. They even could consider withdrawing from the security zone and force Lebanon to an agreement. The Israeli forces can easily protect and control the border of Israel with UAV’s, radar and infra red/optronic sensors. The security zone is a nice to have but not a necessity to garantee the security of Israel.

At the same time this would give Israel some time to handle Syria on their terms instead of being forced to negotiations in which you only have to give in.

Standaard
February 1997

February 1997

February 1997

The end of the Cold War promised to bring a new era of peace and progress for humanity. The contrary happened for large groups of the human society.

The demise of the Sovjet Union should have brought a peace dividend, which actually happened for the industrialised countries, but for a great number of countries it meant the outbreak of inter-state and intra-state rivalries. The conflicts where of relatively small scale but the large number, the intensity of them and the hate between them made it look very bad.

1997 will show that most of the conflicts which rose out of the demise of the superpower rivalry “are still alive and kicking” and are very difficult to solve.

In this article we will give a global view of a number of areas were conflicts are going on or where there is some tension between states or within states.

Europe

In Europe there is one major conflict between states. And this conflict is born out of an intra-state conflict, namely the dissolution of Yugoslavia. Yugoslavia fell apart through the rivalries about power and economic benefits between the several ethnic populations which lived in former Yugoslavia.

Only the conflict in Bosnia Herzegowina is still more or less going on. The intervention of IFOR and later SFOR stopped the actual war but the ethnic cleansing and the hate between the different people is still present. And if SFOR would leave in the near future it will be very likely that the Serbs, Croats and Muslems are at war again.

All other conflicts in Europe are of a different nature. They are intra-state, the willingness of a people for independence or greater autonomy. The Irish in northern-Ireland want a reunification with the rest of Ireland. The Basks in Spain want an independent state. The Corse in Corsica want a special, privileged, status within France. All those organisations which want to pursue their goals are mostly terrorist in their actions. All those organisations have not be able to get the support of the majority of their own people. The people of those areas would like to be independent or have more autonomy but they are not prepared to use violence. They can live with the situation as it is, it is not that important to them.

The intrest groups, like the IRA and ETA, will continue their fight even when they will never win. Because no side can win in this kind of war.

Africa

The continent experienced an explosion of internal violence after the demise of the superpowers. Old regimes lost their support from one of the two superpowers and the opposition/other clans could rise and try to take over power.

Algeria is struggling with a religious fundamentalistic opposition which is waging war through the use of at least two organisations, FIS and the GIA, to force the ruling government out of power. The religious groups represented through the FIS believe they are right because they won the elections that were cancelled through military and the sitting political elite.

The struggle between the two sides will continue till one of them is to exhausted to go on. Both sides enjoy less and less support from the population because the excessive violence used by both sides to intimidate each other estranged them from the population who suffer mostly from it.

Libya is also experiencing some violent opposition. The ruling of Khadaffi is questioned because the economic situation is deteriorating because of the low oil price but especially through the economic boycot. The opposition is not yet strong enough to eliminate Khadaffi but it is more then a nuisance.

Sudan is essentially a country divided in to two countries. The Islamic north and the Christian/anamist south. The north tries to force the Islam religion to the south to control and dominate the whole country. The northern forces are experiencing heavy opposition from the south. The south even gets support from the north of groups which do not agree with the autoritarian regime of Islamic fundamentalists. Both sides are not strong enough to enforce a solution in the coming months. It will mean a prolongation of the conflict for very long time.

Rwanda/Burundi, these two small states are inhabited by a Hutu majority and a Tutsi minority. The Tutsis dominated in the government and the military and the Hutus in trade and agriculture. This situation lasted till the elections. After that the Hutus achieved power, they used it to eliminate the Tutsi power and later in Rwanda to destroy the Tutsi as a people.

The Tutsis in Rwanda did get support from a Tutsi group which fled outside the country after the Hutus took over control after the elections some years ago. After a very long battle against the Hutu government the Tutsis could achieve a victory. A large number of Hutus fled, afraid of an eventual revenge of the Tutsis. The conflict moved itself to Zaïre.

Zaïre an impoverished country by the ruthless exploitation of its leaders. The Hutus who fled to Zaïre continued their battle against their enemies in Rwanda. At the same time they encouraged ethnic differences between the original Zaïrean people and Tutsis who had moved in several hundred of years ago. After some harassments the Tutsis hit back and with the support of some Zaïrean opposition groups and the Rwanda army they could force the Rwandan Hutus out of Zaïre and they could establish a small state of their own in eastern Zaïre.

The Zaïrean forces which are ill-equipped, badly paid and hardly trained could not pose any danger for the advancing opposition/Tutsi forces. The results of decade long neglection of any state structures becomes clear if you see the actions the “official” government takes to recover the lost territory. The government will not be able to regain power that easily. The conflict promisess to continue for a long time.

The conflict in Somalia is nearly over with the exception of the battle for control of certain parts of the capital and the countryside. But the country is effectively parted in several small holdings were a warlord is in power. And as long this is the accepted modus of operandi, the war will be over.

South America

The wild days of this continent seem to be over, with the exception of Colombia and Peru. These countries still possess some active querilla forces which creates some difficulties for the development process.

Colombia has the biggest problems with handling the internal security threat. About three to four querilla organisations and a number of criminal organisations are trying to undermine the government. The querillas have a political goal and the crmininals just want to do their illegal business. Both groups can easily continue the battle against the government because they are financially well off through the drugs and kidnapping business. The government at the same time is hampered in their actions against the querillas and criminals because of the scandals in which so many politicians are involved.

Peru has minimised the impact of querilla organisations on the society but they still exist. The “shining path” and MRTA organisations are still active, as seen by the operation in the Japanese embassy of the MRTA. Both organisations are difficult to eliminate and will stay dangerous until a political solution is found which is acceptable for all parties. But this maybe impossible, the best course of action is to eliminate their goals by adopting them and thereby to destroy their support and “raison d’etre”.

The Indian sub-continent

The factional wars in Afghanistan seem endless, even when the Taliban in in control of two-thirds of the country, it will have to fight hard to get the last third. The three warlords in the north will stay as long as possible in power and even when they loose they will continue as a querilla force to act against the Taliban. The Taliban will face the biggest problems after an eventual victory because it as always very difficult to keep Afghanistan in one part because the people have bigger loyalty to the clan and tribe than to the nation state.

The government in Sri Lanka has been succesfull in fighting the Tamil Tigers but after the destruction of the Tamil strongholds it will be more difficult to eliminate the small and agile combat units of the Tamils. When the government can not reach a political solution the warwill go on for a very long time.

India and Pakistan both face some internal dissent from several political and ethnic groups but they can more or less control the situation and take care that it will not grow into a conflict.

Asia

In a number of former Sovjet republics, which became independent after the dissolution of the Sovjet Union, is still some fighting going on over who is in control and what are the exact boundaries. An example of the last one Armenia and Azerbaïdjan about the enclave Nagorno-Karabach. This conflict is now at a standstill because of an armistice but the fighting will start again if the Azeris feel strong enough to eject the claims of the Armenians in the enclave.

An example of the former is Kyrgyristan and Taïjikistan, several parties are waging war about who will govern the country. And because of the shifting alliances no party is strong enough to alter the status quo. Especially as long as Russia is only interested in keeping the fundamentalistic influences out its sphere of influence.

China has also a number internal problems with groups who want to be separated from China. The people of Tibet and Xinjiang both want their independence. The Tibetians act mostly with peacefull means and by the use of the Dalai Lama get very easy an entrance to all international news agencies.

The people of Xinjiang, they are of Turkish stock and related with the people of the bordering countries, are more and more willing to use violence to stop the Chinese influence. In the long run this could mean that China is going to loose an important part of its territory, the part with a lot of minerals and raw materials. The Chinese can only stop the independence movement by violence and mass immigration of Han- Chinese but this will mean even more violence.

The third problem is based on the inequal development of the economy. The coastal regions are getting wealthy and more independent and the inner regions stay behind. The same is true for the people some enjoy the modernisation and get wealthy but the most of the people get relatively only poorer.

Beside the internal problems which China faces, there are also a few potential external problems. First, the now apparently solved problems with India, the border problem is now more or less solved but the new Chinese naval base and the increasing operations of the Chinese navy in the Indian Ocean is not really a act of good neighbourhood.

Secondly, the Chinese problems with the existence of Taiwan, what they consider as a renegade province. If the economical development of China develop itself better than we expect and China feels strong enough to claim Taiwan with other means then diplomatic or if Taiwan declares itself as an independent state and applies for membership of the U.N., then China will be compelled to use force to take over the island or change the mind of the Taiwanese politicians.

Thirdly, the Spratly Islands which are also claimed by China as a part of their territory. Seven countries have claim on the Spratly Islands and some of them, including China, already deploy forces and/or people on one or more of the many islands. All clashes which happened until now could be de-escalated but in the future with a self-conscious China, as powerhouse or in need, this will be more difficult.

The Middle East

Israel will also be 1997 the attraction of the world press, the implementation of the peace accords with now and then a terrorist assault will stress the relation between the Israel, Palestine, Jordan and Egypt to the utmost.

The relation with Syria and Lebanon is more difficult to classify. A war between between them is unlikely, the superiority of Israel is still to big to overcome for Syria. But the tension between them can rise to unacceptable levels because Syria will let the Hezbollah fight a proxy war. The terrorist threat is very difficult to counter especially if the Hezbollah attacks are limited to military targets.

Israel can not easily give up the Golan heights but the absence of peace treaty will push Israel into a corner were it will loose the international support it uses to have. A wise peace which does not sacrifice Israeli security needs is also absolutely necessary.

Finally the conflict which goes on for decades, the Kurdish question. The Kurds are fighting for their own state for several years but they never came any further than autonomy in Iraq. And that was only reached when Iraq was in great difficulties. The goal of one Kurdistan is an illusion because the three countries with sizeable numbers of Kurds, Turkey, Iraq and Iran, will never allow them to unite. And even the Kurds in the different countries and the several clans/parties in a country will never be able to work or live together. See the autonomy of the Kurds in Iraq who were trying everything to eliminate eachother.

The several Kurdish parties wil continue their struggle for independence and the nations who are invloved will continue to combat them and to play out the several parties against eachother. For the Kurds it is a fight with no hope to succeed.

 

Standaard
January 1997

January 1997

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.

Standaard