A BOOM in telephone stocks has helped push shares to record levels in Hong Kong, the Philippines, Mexico and Brazil, but now US money managers are urging caution. ''Some of these things are terribly overvalued,'' said Mark Mobius, president of Templeton's Emerging Markets Fund. Regional markets went along for the ride as stocks like Hongkong Telecommunications and Philippine Long Distance Corp soared 70 per cent or more this year. The Hang Seng Index hit a record 9,733.34 this month, while the Manila Stock Exchange's composite index touched an all-time high of 2,467.53 yesterday. Similar joy-rides occurred in Latin America, where phone companies account for a large part of the total capitalisation of markets. Telephone stocks attract investors partly because they are easily traded and accessible to foreigners. Investors also view them as ways to capitalise on economic growth. ''Especially in emerging markets, it's a bet on the country,'' said Kelly McDermott, international analyst for two Dreyfus Corp global investment funds that hold about US$260 million in assets. ''They are more proxies on the markets than individual companies,'' she said. Share prices have been driven by expectations that fast-growing economies will mean profits for phone companies. Privatisation efforts by Latin American governments have drawn billions of dollars into the region's stock markets. The strong performance of those markets, in turn, has attracted even more dollars. ''There is a huge amount of money coming from the US to telecom,'' said Shaun Chan, who invests about $425 million in Asian stocks for Trust Co of the West. ''It is one of the most promising areas of investing.'' Telephone stocks in the emerging markets of Latin America may offer better value than their Asian counterparts, according to some managers. Telmex trades at about 11 times estimated 1993 earnings, and Telebras at less than 10 times earnings - roughly half the price-earnings multiples of the big Asian phone companies. ''We see considerable value in those markets compared to the Far East,'' Mr Chan said. However, the Asian investments have been far from disappointing, with US investors who bought American Depositary Receipts (ADRs) of Hongkong Telecom enjoyed a gain of more than 70 per cent this year. Philippine Distance Telephone ADRs are up some 78.5 per cent. Some managers who have been nervous about high stock prices are focusing on smaller telephone companies. Mr Chan thinks companies like Star Paging (International Holding), Advanced Info Resource, and Technology Resources Industries will do better than the big monopolies such as Hongkong Telecom. His portfolio is up more than 40 per cent since April, with slightly more than 10 per cent of that going into telephone issues, some of which have more than doubled. ''We are more bullish on the smaller companies because they embrace technological changes more,'' Mr Chan said. Since they started from a low base, smaller companies also had steeper growth curve expectations, he said. Paging companies will increase earnings about 25 per cent a year over the next few years, Mr Chan predicts. Advanced Info Service stock has more than doubled this year, including dividends, and TRI has soared more than seven-fold. Star Paging has tripled. Deciding how much to pay for fast-growing stocks in emerging markets is a tricky matter. Many money managers who are bullish on the potential of overseas telecommunications companies are not willing to pay 30 and 40 times earnings for them. Mr Chan warned that if TelecomAsia came to the market at 40 times earnings, ''we may be a bit hesitant''. Salomon Brothers and Bear, Stearns & Co will jointly manage the TelecomAsia sale. While investors realise there are opportunities in phone stocks, analysts warn they shouldn't expect high returns with low volatility. ''That is just unrealistic,'' Mr Mobius said. ''There will be some fingers burned, and people have just got to realise that.''
