European stock markets safer bet
FUND Management house Newton Distributors Asia recommends investors direct their bonuses towards global and, particularly, European funds.
Company director Connie Fung Man-yu said that people with a US$100,000 bonus, for example, should invest 60 per cent in a global fund, 25 per cent in a European fund, 10 per cent in a bond fund, and 5 per cent in cash or a money fund.
Ms Fung said that, over the past five years, such a portfolio would have yielded an annual return of 18.69 per year She said investing in a global fund would reduce the investment risk by diversifying the capital around the world's markets.
'The MSCI [Morgan Stanley Composite Index] showed that Asia's stock markets are very volatile,' she said.
On the other hand, European and international equity markets were experiencing more steady growth and were less volatile than the Asian markets.
Ms Fung warned investors eyeing Asian markets to be cautious.
'Asian markets are very cheap at the moment but investors may need to wait for a long period of time before they fully bounce back,' she said.
Ms Fung predicted Europe would be the best market in which to invest next year as the European economy was recovering and interest rates there were just 2 to 3 per cent.
The proposed European Monetary Union (EMU) in 1999 would force the European countries to limit their deficits to no more than 3 per cent of their GDP growth.
'It is why most European governments are cutting their tax and expenditure levels. It will benefit the European economy as a whole,' she said.
Ms Fung said the European market may be a long way from the SAR, but this was no reason for the public to lack confidence, with a lot of well-known brand names in Hong Kong coming from Europe.
Many European enterprises were aiming to restructure, drawing up merger, acquisition and privatisation plans, in a bid to cut down costs and increase productivity. This would ensure that European enterprises continued to post good earnings.
The weak performance of some European currencies would also help to boost European exports.
Ms Fung said it would be better to invest in European equity markets rather than bond markets since they offered much better returns.
Stocks that benefited from the increasing age of a population would be the best performers, she said.
By 2005, Europe would have more people above the age of 40 than those who were younger, which was an indication that the population was ageing.
'Under this circumstance, medical stocks, such as Novartis, Astra, Rhone Poulenc, and the stocks of insurance companies, pension schemes and saving plans would perform well,' she said.
In the foreign exchange markets, she expected the US dollar to continue to be strong next year, performing better than other currencies. As for bond investments, Newton favoured sterling since they had a yield of 6.5 per cent, compared with a 3.5 per cent yield from Swiss bonds and 5.7 per cent from German bonds.
