Tagarchief: South America

March 2001

March 2001

March 2001

South America, assesssed

Introduction

The South American continent has experienced many ups and downs in its history and big political changes in its recent history. Internal struggle, coup d’etats by the militaries, subsequent political suppression and a return to democracy have been the common history in South America. The northern part of South America have been thereby, after the political struggles, confronted with criminal organisations combined with leftist guerilla organisations who undermine the society. These countries have experienced a new kind of intra-state conflict. Guerilla movements who have become relatively independent from outside support through the involvement in criminal activities. Beside kidnappings and tax extortions in the territories they control they have found a new and very profitable source of revenue. The protection of criminal organisations who grow, process and transport illegal substances, read cocaine, heroine and marihuana, in the territories they control.

The drugs producing, processing and transporting criminal organisations have corrupted many societies, governments, in these regions and these organisations have been more than willing to use violence to reach their goals. The free flow of narcotics and free access to the profits of their trade.

The leftist guerilla organisations have become a great problem in some countries. Especially if they could connect their political case with the financial possibilities of the drugs trade. This have made those guerilla groups very powerful as they can buy the weapons they want and they can even take care of their soldiers and administer the territories they control.

The country most under threat by leftist guerillas and narco-organisations is Columbia. The country is facing incredible problems which will continue in the foreseeable future as they are essentially independent in their policy and financing.

A diplomatic solution will be very difficult as the concerning parties do not trust eachother and maybe more importantly, they both want to have their maximum demands fulfilled, e.g. the take over of power.

The activities of the Columbian based guerilla organisation even start to cross the borders with neighboring countries to increase their revenues and fighting power.

Other countries are also experiencing problems with the combination of criminal organisations and guerilla movements. But not on the scale as in Columbia.

The South America continent is facing other tensions on a different level. At least three countries have differences about the exact demarcation of the border. These problems have been kept under control but any unexpected action or even an increase of internal political problems could lead to an increase in external tensions to take the pressure of the internal problem.

The border differences are in the northern part of the continent which also face the biggest problems with the economy and problems with leftist guerilla organisations.

The countries further to the south are more stable internally and externally. They do not have problems with guerilla organisations nor other organisations which want to change the political landscape by the use of violence. They have like the majority of the countries on the continent some problems with the economic development, national account and monetary / currency problems but they are still more or less controllable.

Argentina

After the military junta in Argentina had been replaced by an elected government, the political internal problems have disappeared. All political parties are in the position to be part of the system and operate in it.

The problems of Argentina are of another dimension, they are of an economical nature. The economy of Argentina has been improved but remains weak. The government has problems to keep the cost under control, the currency is under pressure, even if it is, and partly because of it, connected to the US dollar and the economy is to one sided directed at agriculture.

Argentina failed to create a significant middle class with the the accompanied industrial base. The modernisation of Argentina is lagging behind.

Chile

Chile is the economical bell weather of South America. The economy has shown a admirable development in the last decade. The change to an elected government has also increased the political stability in the country. There are therefore no movements who want to change the government by the use of violence.

The government is stable and the military is not showing any will to become involved again in the running of the country. Chile is the most stable country on the South American continent.

Paraquay

The situation in Paraquay is also pretty stable, but the economic development is slow and is more or less undermined by smuggle activities into Brazil and Argentina. The government is however able to keep the situation under control.

The government of Paraquay is however facing some problems with former generals who have some support in the armed forces and the population who disagree with the current government. They are however not yet strong enough and bold enough to try to replace the government by force.

Uruguay

Uruguay has become a stable country after the military dictatorship had been replaced.

The political situation is very stable and seems not be under threat by any vilent opposition movement. The military is also showing none what so ever ambition to become involved again in the running of the country.

An additional advantage is that the current president, Jorge Battle Ibenez, is very popular and is largely responsible for the current positive political and economical development of the country.

Brazil

The largest country of the continent, Brazil, is a very diversified country. It is very rich in natural resources and has a large population. The country is more or less stable, there are no political opposition movements which could challenge the government with violence.

The economic situation is however more concerning, there is a very large gap between the rich and poor part of the population. The economy is also very much based on agriculture and lacks any large scale modernisation policy.

There is also, like in Argentina, a lack of growth in the middle class with an industrial base. The better off, the elite, is to much focussed on the agriculture. The elite controls vast tracts of the countryside which is very often not cultivated but only in their possession out of culture, inheritance, and as a collateral to finance an abundance lifestyle or business activities. The business activities are then mostly trade or some other kind of relatively quick money kind of business activities.

The economic development is further hampered by government regulations and problems with the national currency.

The only bigger problem in Brazil are the criminal organisations which control the slums in the big cities of the country. They use the slums as a safe haven to run their criminal activities, especially drugs trade. But these organisations are to small and not interested in government affairs and pose no threat to the political stability a such.

Bolivia

The landlocked Bolivia is politically relatively stable, there are no political organisations which are undermining the government with the use of violence.

The problems of Bolivia are also of economical nature. The development is slow and seems to be unable to get an impetus from the government or from abroad.

Bolivia is only facing some problems with the increased activities of criminal organisations and guerilla organisations out of Columbia who are increasing their working territory to the neighboring countries.

The incursions out of Columbia are at the moment of small scale but if they get any hold they will quickly increase. This will undermine the government as corruption will increase and will be bad for the stability in the country.

Peru

Peru is a typical South American country with a history of suppression and a return to democracy. The Peruan society is like many of its neighbors divided into a small elite, of wealthy people, and a large group of poor people with little to none possesions. The elite is living from the natural resources the country can deliver, the poor are living to support the elite. There has been none to little modernisation in the country. A middle class has not been given the chance to develop therefore no creation of a small to medium scale industrial structure. The country lacks any substantial modernisation policy which will damage any bigger development.

The recent abdication of former president Alberto Fujimori, which had to leave office after a dubious running of the presidency and more importantly black mail attempts by his former SIN intelligence chief, Vladimori Montesinos, of parliament members left the country in a weak position. The new interim president Valentin Paniagua, is doing his best to consolidate his position against possible coup d’etat attempts by the armed forces and the Montesinos clan.

The weak economy and new president is a problem but Peru has three other problems. One external, one in and external and one internal. Peru has a territorial conflict with Ecuador, and both even had a small fight about the disputed territory. This dispute is at the moment under control with support of the United Nations but it remains to be seen if both are satisfied with the current arrangement on the longer term.

The internal and external problem of Peru are the increased activities of criminal organisations which are engaged in the production and processing of illegal substances, read cocaine. These organisations are supported and sometimes even controlled by the Columbian FARC, guerilla movement. The FARC is increasingly using Peru as a new territory to increase its revenues and as a support base for its activities in Columbia. These activities undermine the security in Peru and more important it will create an uncertain situation in Peru. The drugs business will create more corruption and will damage the stability in the country.

The internal problem of Peru has become less in recent years through the successes of the armed forces againt the Sendero Luminoso, Shining Path, left wing guerillas and the MRTA, the left wing city guerilla. The activities of both are severly contained but they still exist and their threat could increase in the future.

Ecuador

Ecaudor the relatively small country is facing a difficult future. The oil wealth with which Ecuador has been blessed has not delivered the development and wealth it promised. The economy in Ecuador is in a bad shape, there has been also none to little modernisation and no creation of a middle class. The country is divided into a wealthy elite and a large poor group.

Ecuador has been further undermined by an internal and a external problem. The internal problem is about new subservice / terrorist groups in Ecuador which became visible by a number of bombings in the country against foreign countries, especially the U.S.A. and installations of foreign companies. These small groups do not now and on the short term pose a threat to the government. But they are highly irritating and might hinder the econoic developmet of the country.

The external problem, the territorial disaagreement with Peru, is at the moment under control, but there is still a problem with the exact demarcation of the border with Peru. This will need extensive negotiations to solve the problem forever.

Columbia

Columbia is facing the biggest problems of all , the country is being undermined by several criminal organisations and even more threatening leftist guerilla organisations who already control substantial parts of the country. The situation in Columbia is further complicated by the AUC, a rightwing militant organisation. The AUC is an answer to the leftist guerillas at first supported by the wealthy elite and the government but at the moment more or less independent.

Columbia as a country is severly limited in its actions, souvereinity, the country is effectivily under siege. And it does not have the abilities to change this situation on the short term. At best they can stabilise the situation. The armed forces of Columbia are not able to defeat the guerilla movements. The armed forces are to occupied with protecting important installations and persons and the absolute bare minimum of training. This leaves only a relatively small part of the armed forces free to be used effectively against the guerilla movements.

The main opponents to the Columbian government are two leftist guerilla movements. The largest is the FARC, Fuerzas Armadas Revolucionaries de Colombia, or in English the Revolutionary Armed Forces of Colombia. The FARC has occupied large parts of the country and has been given a refuge by the government in exchange to join negotiations of 40.000 square kilometers. The FARC is financed by taxes they collect in the territory they control, smuggling of narcotics and protection money from narcotic growers and organsations. The steady flow of revenue from own resources has made the FARC very independent. They cannot be influenced by outside parties and forced into a deal.

The second opponent is the ELN, National Liberation Army, the second strongest opposition party / force in Columbia. The ELN is smaller than the FARC and is also funded by tax collection, smuggling, protection money and by kidnappings. The ELN have established their name by these kidnappings and by the destruction of oil pipelines and electricity masts. The ELN also requested a refuge from the government of about 20.000 square kilometers, but the government declined to accept that demand in exchange for negotiations. Because the ELN is a lesser threat and the bad experiences they made with the FARC territory.

It is estimated that the FARC and ELN control approximately 40 % of the territory of Columbia but operate in an even larger area, at least the double of that.

To make the situation even worser, Columbia is also undermined by right wing paramilitary organisations. There are several right-wing paramilitaries which are leaded and funded by rich landowners and also narco organisations to combat the leftist guerillas and the narco organisations which operate without their permission. With extreme violence they suppress the rural population and the guerillas and the competing narco organisations. One of them, AUC, Autodefensas Unidos de Columbia, or in English the United Self Defence Forces of Columbia, has grown larger and became more independent.

As the left wing guerillas they quickly found out that they can earn enough to have their own business and do not need the funding of the elite and/or government. There are still some covered contacts with some government officials, read military officers, but they have none to little influence over the AUC.

The AUC has become something of a unwanted organisaton to the government at first they came in handy but as they became uncontrollable and even an important opponent of the FARC and the ELN all want to get rid of the AUC. The cruelty with which the AUC operates and the threat they pose to the FARC and ELN make them unwanted.

All calls of the AUC to be involved in any negotiations was therefore refused by all parties. The FARC even occasionally demanded of the government to eliminate the AUC before to continue negotiations.

The much publicised and many negotiations between the government and FARC have until now led to nothing. It were mere exchanges of demands, especially the FARC uses the negotiations to ventilate their wishes but do not really negotiate with the government. The FARC still has the impression that they can get what they want, e.g. a change of government, with the use of violence.

The continued fighting in the country between the different sides has devasted the Columbian economy. The small business sector has been undermined by the activities of the guerilla movments, which levy taxes and make doing business extremely difficult. Columbia relies on its revenues on the export of oil and other raw materials. The most succesful commodity, export product, of Columbia still remains cocaine and other illegal substances. The narco organisations even produce at the moment their own heroine and slowly move into designer drugs.

Columbia will remain in the foreseeable future very unstable as none of the parties involved is able to change the situation to their advantage. All are simply not strong enough to defeat eachother nor are they willing to cooperate to defeat one or two opponents.

Venezuela

The situation Venezuela is different from the one in Columbia. It is largely an economic problem. Many years of government mismanagement has created a very bad economical situation. Another problem is that Venezuela is, like Brazil and Peru, targeted by the Columbian FARC as a new area for revenues, read drugs, and as a support base. This will bring all problems related to the drugs problem to Venezuela. Government corruption and the destruction of the local farm business and country structures will become more common. The production, processing and transport of cocaine is much more profitable thus easily accepted by the poor farmers in the outback of Venezuela.

Venezuela has however a much more threatening problem which could destabilise the region. Venezuela has a claim on large parts of neighboring Guyana.

The election of Hugo Chavez as president, which promised to bring economic progress and an end to the governmental mismanagement and corruption has not brought prosperity until now. Chavez introduced some regulations, popular with the population and promised to do more things like those but all he did and promisses to do in the future has not been really beneficial for the country, and he changed the law and constitution rather illegally. This all has not brought any larger improvement. The rise of the oil price was more benefiacial than anything Chavez has done until now.

To worsen the situation even further Chavez called on an old claim on territory of Guyana. This to rally support in the population and as a kind of scape goat to draw attention away from the worsening economy.

The increase in the oil price improved the economic situation of Venezuela and the position of Chavez but this increase in revenues will only have temporary effects.The price of oil might fall and you get used to easily to the increased revenues and expenditures.

The claim on Guyana will be on the table again on the short term. Worsening the regional stability and consequently the economy of the whole region. Venezuela remains an uncertain place to invest. To many threats to any investment., from a legal, economical and from a security perspective.

Guyana

Guyana is experiencing a lot of economical problems, the economic development is stagnating and to make things even worser it has been threatened by Venezuela. Years of governmental mismanagement has caused a lot of problems and will have effects in the years to come.

If the threat out of Venezuela could be eliminated Guyana could have chance of getting into better and safer waters but until then it will remain an uncertainty for Guyana and the attractiveness for investments.

Surinam

Surinam is also experiencing an economical crisis, the growth has been very slow, non existent to negative, the inflation has risen and the currency in a free fall. The political stability has been under threat by a possible coup d’etat by former president Desi Delano Bouterse. A threat which has been lessened after the recent elections and rumors of financial difficulties of Bouterse but it remains uncertain at which level the relations with the military and his political party are.

There are sign of improvements in Surinam but the economy is still having difficulties to restart and show some bigger growth figures. The new government has a chance to change the situation but will need support from abroad. An improved relation with the former colonial master, the Netherlands, and if the last tranche of the money set aside after the liberation is set free, there are some possibilities. Especially with a prudent policy and restrained spending.

Conclusion

The South American continent is a very differentiated continent, from wealthy and stable to relatively poor and unstable. The countries in the south of the continent, Chile, Argentina, Uruguay and Brazil are more or less politically stable countries. Argentina and Brazil face some problems with the expenditures, high debts, modernisation and currecny stability, but they can be brought under control if all efforts are put to it. Chile is economically the most succesful with Uruguay on a good second.

Then there is a large group of countries in between, countries like Paraquay, Bolivia, Ecuador and Surinam. These countries are more or less politically stable, the chances on a change of power through the use of violence, or even that there will be any violent actions of one or more groups will be negligible or on a very small scale. The problems with these countries are about the lack of economic development and pressing problems with the country’s finances and currencies.

Then there is a group of countries on the edge, which are at the moment politically stable but this just happened or a new development could change the current situation. The economy of these countries is troubled which could easily lead to political instabilty. Countries in this group are Peru and Venezuela.

Finally the last group of countries is the smallest and consists out of one country, Columbia. Columbia is politically and economically unstable. The country is under threat, it needs to fight for its existence, by three dangerous movements which want to change the current government. Criminal organisations involved in narcotics are worsening the climate in the country. The economy is undermined as rebel movements are weakening the infrastructure and businesses. The export of raw materials and illegal substances are the only means of income for Columbia.

In general it can be stated that South America, with the exception of Chile and possibly Uruguay, is having a number of problems. The majority of the countries are politically stable, the governments are elected and the democracies are functioning more or less. The problems of South America are of an economic nature.

The societies in South America are divided in a very wealthy elite and a large group of poor people. In most countries the middle class is very small. The economy is still to much dependent on agriculture and raw materials. There has not been any, or just a little, modernisation of the economy.

The industrial development has been neglected and the middle class has not been given an opportunity to develop and grow. The majority of the countries lack any dynamic development of an industrial and service sector. Everything has been limited to agriculture and raw materials. The elite could live very well on those two sources but this has not created any progress for the people or the country for that matter. All institutions, including the government and legal system, were aimed at maintaining the current situation. Any new development especially in the business sector has been very difficult in this situation.

The continent has to do a lot to change this situation of slow development. The governments should stimulate the development of the economy, read the modernisation of the industry and the society. The government should start with the creation of a balanced budget, restructuring of the debts, have a stable currency and a clear development policy.

The development policy should include new legislation, including property rights, education and housing for the population. The new legislation is necessary to make it easier to start new businesses and property rights to make sure that the new ventures belong to the people who started it. This will make it also easier to get financing if it would be necessary. Another advantage would be that the poor people will be finally be able to get, build, houses on their own property. At the moment it will take over 20 to 30 permits in some South American countries to get a property title.

The government should also have a housing policy to eliminate the often very bad circumstances in the slums. Which are very unhealthy and are often the headquarters of criminal organisations and in the slums they are nearly untouchable for the police forces.

Probably the most important factor will be the education of the population. A large group of youths need to be educated in the new sciences to stimulate the creation of new companies and attract foreign companies and investments.

This potential large pool of workers and the entrepeneurs could become the new middle class. Economic growth could be attained by this policy. All this can be done at relatively low costs, especially if compared by the cost of an insurgency. Which might happen if the current structures in the society will last and hinder any economic development. The unemployed youths will become dissatisfied and become targets of small groups who want to change the society by the use of violence.

Standaard
April 1999

April 1999

April 1999

Portfolio management in 1999

A new year with new opportunities to invest, divest or hold your portfolio. Might it be a diversified portfolio of stocks, bonds, real estate and derivatives, a mixed less risky portfolio of treasuries, bonds and some mutual funds or a secure portfolio of treasuries and assetbacked bonds. All need some management or decisions to continue the existence and profitability of the portfolio.

There are essentially two important decisions to make about a portfolio. What is the intention or goal of the portfolio and what level of risk is acceptable. To generate an income or to accumulate wealth. And so secure with a domination of bonds or more risky with stocks and derivatives. These two questions determine the composition of the portfolio. The next step is about the portfolio.

If the personal requirements are established the portfolio can be created. Again a number of decisions have to be taken. Namely active, many trades, or inactive, only the yearly allocation, management of the portfolio. Or a combination of both, active only if necessary. Another option would be to hire a financial institution to do the business for you and leave it to them.

A short history of 1998

1998 was a very volatile year for the economies and on the stock markets. It has shown the best and the worst of what can happen. The U.S. economy showed improved growth figures, Europe showed moderate growth, Asia achieved some kind of stabilisation where as Russia and South America, especially Brazil, experienced a currency devaluation and a shrinking economy.

The stock markets showed an equal volatile behaviour. The first quarter, until April, the stock markets enjoyed an unprecedented growth. After a short interruption in April the markets continued their rise and new records were achieved in July. The Russian crisis and South American currency problems sended shock waves through the world stock markets. The markets turned south and lost between 10 and 20 % of their value. In October an all time low, of the year, was reached.

But at that time the market bottomed as the economic forecasts and company figures proved to be better than anticipated. In November of 1998 a recovery started which would bring the stock markets back to their former heights. The markets closed at a record high on the last day of 1998. After all the year has been better than was expected after the retreat during the late summer and autumn.

The recovery of the stock market was based on a number of reasons. The most important condition for the rebound were the promising economic and business figures of the fourth quarter in the U.S. and to a lesser extent in Europe. This was supported by the low interest rates in the U.S., the strong consumer demand in the U.S., the improving international situation, especially in Asia, the containment of the Russian and Brazilian problems and the availability of an abundance of cash needed to be invested.

1998 ended promising for the next year even if you consider the large number of problems around which could depress the stock markets of the world. Problems like the milennium problem, lagging demand in Europe, the Middle East and Asia, the problems in Russia and South America and an overvaluation of a large number of stocks in the U.S.A. and Europe. But the existence and impact of those problems might prove to be lesser than most of us think.

Rayanalyse internet portfolio

Last year in our 1998 January II issue on our website we proposed and example portfolio. This has been an good mirror on the ups and downs of the stock market. It has shown excellent results but was also hit by the downturn in some sectors like financing and oil and oilservice industries. But even at the lowest level on the stock market indices we still attained a result close to 10 % with the exception of our Asian proposals.

The year result on the portfolio has been in line with the development of the stock markets. If however the portfolio had been managed according to the conditions of low level management the results are above the stock market indices development. Low level management is to act only if the stocks are pressured by developments like accounting irregularities or a loss of more than twenty percent. The rule of cut your losses should then be implemented.

The policy to select quality stocks, stocks of companies with a sound product collection, healthy company structure and finances and superbe management, have been very profitable in 1998. The return of the stock portfolio has been better than anticipated. The average return on our U.S. selection has been over 18 % if no changes were implemented but over 30 % if some little changes, according the above mentioned rules, were used. The European stock portfolio performed more or less the same with a return of over 32 %. The Asian portfolio showed a mixed result. The Asian, Hong Kong, Taiwanese and Singapore, stocks delivered a small positive result of barely 5 %. The Japanese stocks were the disappointing part of our example internet portfolio with a loss of over 6% over the year.

In general the allocation and the selection of stocks of our example internet portfolio has been a right decision in line with the development of economies of the world. Our research, understanding of the markets and our investment policy has proved itself with this performance.

An outlook on 1999

The general situation in the world will be very differentiated. Some parts will be stable but large parts will be very unstable. The unstability is the result from political, economical and social tensions in some countries and regions.

The unstable areas are located in geographical and economical areas which have limited effect on the economies of the leading countries in the world. Regions and countries which have to be dealt with with great care are nearly all underdeveloped and autocratic. Like large parts of Africa, the new countries in the Caucasus, Iraq, Afghanistan, Pakistan, Sri Lanka, Myanmar, Indonesia, parts of the Philippines, North Korea, Haiti, Columbia and Yugoslavia. Other countries with a higher level of risk are Russia, China, some Middle Eastern countries, middle America, Brazil, Venezuela and Cuba.

The countries belonging to the developed world, the U.S.A., Europe, Australia, South American countries like Argenitina and Chile and the Tiger economies in Asia are the most promising in the world. Especially the U.S.A., Europe and Australia will remain as stable as before where as the Tiger economies and South America will see some improvement after the recent problems they experienced.

The economies of the U.S.A., Europe and Australia will continue to show growth. The growth will be lesser than in 1998 but a growth for Europe and Australia of 2-2,5% will be feasible. The U.S. economy will remain the strongest economy in the world. Continuing strong consumer demand will keep U.S. growth at 3,5-4 % in 1999.

1999 will be a good year despite negative comments about the milennium problem, lower demand, high unemployment and an uncertain situation in Russia and Brazil. 1999 does not promise to be paradise and therefore careful stock picking remains very important. And true, some sectors like some parts of the IT industry will experience some slow down but this will pick up in the fourth quarter of 1999 or the first quarter of 2000. Or South America oriented companies will see a drop in sales but a change in markets should be able to alleviate this temporary loss in markets. And finally the market will react brutally on any negative international developments and earnings warnings which will cause a correction. But the strong economic fundamentals in the U.S. and Europe and an improving world economy will stimulate economic growth.

The negative advance/decline line, more stocks loosing value then gaining value, and the high price/earnings valuations of a number of stocks should according to some analysts have a depressing effect on the stock market. This is true for conventional stocks but the majority of the stocks with a high P/E are different from the usual, conventional, companies. These companies value is based on a knowledge based capabilities. Those companies belong to software, pharmaceuticals, insurance and particular strong franchise based operations which allow a higher P/E than used to be in traditional capital and labor intensive companies. This group of companies will continue to boost the stock markets as long as their productline remains in demand.

The negative advance/decline line is more worrisome. The growth of especially the U.S. stock market and to a lesser extent the European stock markets is based on a small group of companies. These companies are mostly knowledge intensive and aimed at the home markets. A wider spread of growth would be desireable but will only happen if the cyclicals and the export and manufacturing oriented companies, or better the world economy, improve. A full recovery will be doubtful in 1999 but the first improvements, a higher demand for manufactured goods and the slow improvement of the world economy, especially South East Asia, will become visible in the fourth quarter of 1999.

1999 will be volatile as there are to many uncertainties and depressing factors around. Growth and corrections will follow but at the end of 1999 the market indices will have reached new highs and the majority of the stock market indices will end far above the current level.

The second halve of 2000 and the first quarter of 2001 will finally bring a decisive improvement in the world economy as the crisis will diminish and demand increase.

Asset allocation in 1999

The need for a balanced portfolio based on quality stocks and bonds which are able to gain a profit in a difficult and volatile year as 1999 will be even more necessary as in 1998. Weak countries and stocks should be avoided as any change in the market will be violent and large. Losses of over halve of the value are possible in such a volatile situation as we are now experiencing.

A portfolio, with limited risk, good growth perspectives, for the medium to long term and with low level management, should be structured like this; 50% stocks, 35% bonds and treasuries,10% property and 5% in liquidities. The low inflation, shorttime opportunities like repos or gilts and the promising opportunities in the fourth quarter of 1999 makes the availability of some extra capital an attractive and profitable option.

The geographical allocation could be like this; 38% in Europe, 5% in Eastern Europe, 42 % in the U.S.A., 4% in South America, especially Argentina and Chile, 4% in Australia/New Zealand, 4% in South-East Asia and 3% in Japan and Hong Kong.

You can either invest directly into the stockmarket or into one or more of the many funds which are offered by several financial institutions. These funds offer an opportunity, with lesser capital, to invest into a larger number of companies than would otherwise be possible. These funds are related to a stock market index, an industrial sector or a geographical region. This would decrease risk, optimise your possibilities and limit the workload and the commissions.

It is certainly adviseable to invest into funds if one or more of these conditions are present; with a limited sum to spend, in emerging countries, if the government regulations are complicated and if information and accounting rules are below western standards.

The markets

As mentioned before there are several opportunities to invest. In country, region, index and industry funds and/or directly into companies which are listed on a stock market.

Investments into Eastern Europe, Hong Kong, Japan, South East Asia and South America can be best done, because of the small scale of the investments of our example portfolio in those areas, through a country, region or industry fund. With the selection of such a fund you should pay some attention to who is managing the fund, what is the track record and how is the assessment of the market and the companies which are part of the fund.

The Eastern European market looks promising in 1999. The influence of the Russian crisis will get lesser as the Eastern European countries are becoming more and more part of the Western European culture and economy. Especially Poland, the Czech republic, Hungary and Slovenia are becoming more stable and are promising the biggest growth of the group in 1999.

The Baltic countries, Slowakia, Croatia, Romania and Bulgaria are still having problems with the change to a market oriented society. High unemployment, poverty, high debts and a large uncompetitive industrial sector are causing problems and are limiting growth. These countries will not see a positive change in 1999. It will take at least another 5 years before they have reached the level of Poland, the Czech republic, Hungary and Slovenia.

Hong Kong has experienced a drop in business activities and growth in 1998. They have managed to keep the currency stable and will most probably be able to do so in 1999. The close connections with China will inhibit growth in 1999. A stabilisation of the current situation is the best what can be achieved. A participation in a fund is the best way to profit from a possible improvement in the economic situation in Asia which might start at the end of 1999. An investment in Hong Kong, China and Japan is however very risky as it might take over two years before a profit can be realised.

The situation in Japan is unlikely to improve in 1999. As long as the population does not consume more, the bad debt problem is not eliminated and the Japanese pecularities of government involvement and criminal activities in the economy are not eliminated the market will remain depressed. The national economy is in a bad shape and a large number of companies are in equal difficulties. Some Japanese companies will however be able to show some growth in earnings and profits. A participation in a Japanese fund with food, retail and export oriented companies could deliver a substantial increase in 1999.

The situation in South East Asia, with the exception of Indonesia, has stabilised. This will lead to a slow recovery in 1999. A participation in a Souh East Asian fund with interests in telecommunications, transport and export manufacturing companies will most probably show the biggest improvement in 1999.

The South American situation is more complicated. Middle America, Columbia, Paraguay, Peru, Ecuador, Bolivia, Guyana, Surinam do not promise to deliver a positive development in 1999. Venezuela and Brazil could show an improvement of the economic situation in the third or fourth quarter of 1999. The new government in Venezuela and an improved oil price could deliver some improvement of the economic situation. Brazil could in the second part of 1999 also show an improvement as the currency and debt problems are solved or brought back to manageable proportions. Only Argentina and Chili seem to be able to generate some growth. The economies of both have been hit by the Asian crisis and the Brazilian currency crisis but the impact could be minimized. A stabilisation and an improvement of the world economy will substantially improve the earnings position of the Argentinian and Chilian companies.

European markets

The international problems and the European inefficiencies in the economy have been a drag on the economic development of Europe. The introduction of the Euro, the new European currency introduced by the majority of European Union members except the U.K., Denmark, Sweden and Greece, have been a positive development to Europe. It will not create short term advantages but on the medium and long term it will strengthen Europe.

The European economy or better the collection of European economies will deliver moderate growth in 1999. An average growth of 2 to 2,5 %, we believe, especially if the world economy improves, a growth of 3-3,5%, will be attainable. There are many problems but the strong economic fundamentals, the slow economic recovery in Asia, the stabilisation in Brazil, the resistance of the majority of the other South American economies to the Brazilian crisis and the positive prospects in Eastern Europe have left the European economies in a good position to expand their growth on the short term, the second part of 1999 or at last in the second quarter of 2000.

1999 will be volatile but it will have a positive direction as the largest economies of Europe, Germany and France, are climbing out of the slow growth period of the last years. The export and consumer demand will continue to be moderate in 1999. It will improve at the end of the year at earliest or at last in the third or fourth quarter of 2000.

The economic outlook for 1999 is moderate positive. But some sectors will perform very well, like financial, pharmaceuticals and services where as capital goods and basic industries will underperform.

The United States of America

The largest economy of the world has experienced an enormous growth in the last four years. The economy expanded at an averge of four percent a year. Increased export and above all very strong consumer demand stimulated growth. It seems as the growth is slowing down somewhat in 1999. This will be lesser than anticipated. The strong fundamentals and the improving world economy will support the U.S. economy. A growth of 3,5-4% will be easily attainable in 1999.

The U.S. will remain strong and the people will profit from this situation. And even more important more savings were realised in the first quarter of 1999 as the personal income rose stronger then personal spending. The increases in personal income does not fuel inflation as the rises are within the production growth of the U.S. economy.

This economy will keep on booming as the performance of companies remains good, interest rates low anf demand high. After 2000 the growth will continue as the world economy, South-East Asia, will finally experience a substantial improvement.

The stock market will mirror this performance in 1999. But volatility with a number of corrections and afterwards recoverings remain a part of the game. The stock markets will see the growth based on a wider group of companies, a rotation from computer manufacturers to oil and oil services industries and continued strength in the pharmaceuticals, financials, retail, telecommunications and some IT companies.

Attractive listings

Nearly all stock markets have a couple of interesting companies which promise to deliver a stabile growth or even outstanding growth in the coming year. These expectations should be based on the performance and capabilities of a company and any company which growth is based on a hype or special media coverage should be avoided.

The companies we list are promising for some growth next year, are based on a good product and are masterfully managed, at least according to our research. We especially like stocks in Europe and the U.S.A. as they are the most promising and less risky.

In the U.S.A. we like AT&T, Bell South, MCI/Worldcom in the telecommunication sector. In the ICT sector we like the software-services side of the business like Computer Sciences, Computer Associates, Wind River, IBM, Lucent, Cisco Systems, and Unisys. In the more hardware side we like Hewlett Packard, Applied Material and Sun Microsystems. In the financial sector we like BancOne, American Express, Citigroup, BankAmerica, Chase, Union Planters Bank, Fleet Financial, Washington Mutual Inc., American International Group, Merrill Lynch and Charles Schwab. In the retail industry we like Walmart, Kroger, Dayton Hudson, Kmart and the GAP. We continue to like in the oil / energy industry Exxon, Texaco, BP/Amoco, Mobil, Unocal and Burlington Resources. In the oilservices industry we like Schlumberger, Diamond Offshore, Baker-Hughes and Transocean Offshore. In the pharmaceutical sector we like Bristol-Myers-Squibb, Eli Lily, Johnson&Johnson, Pfizer, Schering-Plough and Beckman Coulter. We further like General Electric, Lockeed Martin, Raytheon, Textron, General Dynamics and United Technologies in the defence sector. Home Depot, Staples and Abercrombie and Fitch in the office equipment and apparel combination. In the media sector we like Time Warner, Walt Disney and the more technology focussed companies AOL, Barnes and Noble.Com and Amazon.Com. Finally we like, which are more risky and better suited at the third or fourth quarter of 1999, Intel, Texas Instruments, Federal Express, United, Dupont and Monsanto.

In Europe we like the British, Dutch, French, Swiss, Italian and Spanish stock markets and we eye the German stock market with some care. But we continue to support some German stocks. We like DaimlerChrysler and Porsche in the automobile industry. We like Siemens, Mannesmann and MAN in the electric-engineer sector. We continue to support SAP in the IT sector. We like VEBA and VIAG in the mixed sector. In the financial sector we like Deutsche Bank, Dresdner Bank, Allianz and Muenchener Ruck. And in the pharma/chemical sector we like Bayer and Schering.

In Switzerland we like Novartis and Roche in the pharmaceutical sector. Nestle in the food sector. ABB in the engineering sector. And we like UBS and Zuerich Group in the financial sector.

In the United Kingdom we like BP/Amoco in the energy sector. We like British Telecom and Cable and Wireless in the telecommunication sector. We like Pearson and Sainsbury in the publishing and services sector. In the pharmaceutical sector we like Glaxo Wellcome and SmithKline Beecham. In the food and beverages sector we like Cadbury Schweppes, Diageo and Unilever. And in the financial sector we like HSBC, Barclays Bank and the Royal Bank of Scotland.

In France we like Carrefour, Promodes and Pinault-Printemps-Redoute in the retail sector. We like Danone, L’Oreal and Sanofi in the food and consumer products sector. In the financial sector we like Generale d’Eaux and Societe Generale. And in the energy sector we like Total.

In Italy we like Generali, Mediobanca, Banca di Roma and INA in the financial sector. We like Olivetti in the services sector. And we like Telecom Italia in the telecommunication sector.

In the Netherlands we like ABN-AMRO, ING, Aegon and Fortis Amev in the financial sector. We like Unilever, Nutreco and Numico in the food sector. We like Ahold in the retail sector. We like Getronics and Cap Gemini in the IT sector. And we like Royal Dutch Shell/Koninklijke Olie in the energy sector.

To conclude this little list we like Fortis and Tractabel in Belgium. And in Spain we like Argentaria, Banco Bilbao Vizcaya, Iberdrola, Endesa and Telefonica.

Standaard