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EMERGING MARKETS: THE WINNERS IN A LOSING YEAR (int'l edition)Crises around the world shake up the ranks dramaticallyFrom Moscow to Manila to Medellin, emerging markets this year have been united under one law: Murphy's. Anything that could go wrong, did. Currencies have been devalued, banks have gone bust, and commodity prices have plunged to record lows. And just when it seemed the worst was over, economic crises in Russia and Japan have investors wondering if emerging markets will stay submerged indefinitely. Heavily indebted Russia is dipping into its foreign exchange reserves to support the shaky ruble. And Japan's economic slump could drag down all of Asia. Indeed, these are trying times for even the biggest and best-managed operations, as reflected in BUSINESS WEEK's 1998 rankings of the world's top 200 emerging-market companies. Morgan Stanley Capital International ranks companies by market capitalization as of May 29. This year's No.1 company, Gazprom, the world's largest natural gas producer, has seen its market value plunge by 23% since last year. Rocked by financial crisis, many Southeast Asian companies have fallen off the BUSINESS WEEK list, or dropped sharply in value. Korea Electric Power Corp., for instance, moves from No.5 to No.32. And while Brazil's Telebras and South Africa's Anglo American Corp. again rank among the world's top emerging-market groups, their market capitalizations are also down from last year. TELECOM TITANS. This year, in fact, it's the smaller economies and markets that appear as relative winners in the BUSINESS WEEK emerging-market 200. More than a dozen companies from Greece, Turkey, Israel, Jordan, Morocco, the Czech Republic, and Hungary have vaulted onto the list for the first time, or moved upward. That's because their markets, thanks to their proximity to Europe, have managed to hold on to or even attract investors who have fled Asia. Indeed, the Athens Stock Exchange is up 61% since Jan. 1. With a market capitalization of $4.8 billion, Hellenic Bottling Co., a distributor in Russia and Nigeria as well as Greece, catapulted onto the list at No.51. Meanwhile, the Istanbul Stock Exchange has also risen 33% this year. ''Central Europe and the Middle East have limited financial and trade linkages to Asia, high levels of foreign exchange reserves, and strong macroeconomic policies in place,'' says Mohamed El Erian, European head of emerging-markets research for Salomon Smith Barney in London. With other markets in turmoil, however, the companies best insulated from deflationary winds seem to be those in high-growth industries such as telecommunications. Often the bellwether stocks in a market, telecom companies from Greece, Mexico, China, and Brazil dominate the top 10 in BUSINESS WEEK's emerging-market list. Also making its appearance for the first time this year is China Telecom (Hong Kong), No.3. A provider of cellular-phone services in three Chinese provinces, the company went public last fall. Its market capitalization: a stunning $20.7 billion. A number of Taiwanese technology companies stand out as well--despite the slump in the Taiwan Stock Index, which is down 25% from last August's high. With the chip market booming, Taiwan Semiconductor Manufacturing Co., No.7, saw its market cap soar 28%, to $14.6 billion. Taiwan's Asustek Computer Inc., which went public in 1996, joined the BUSINESS WEEK list for the first time with a market value of $6 billion. Thanks to its expansion in Europe, Latin America, the U.S., and China, Asustek is now the world's No.2 maker of computer motherboards, after Intel Corp. The company earned $212 million on sales of $650 million last year, and analysts expect sales to top $1 billion in 1998. Now, Asustek is pushing into high-end notebook computers and servers. ''We are focusing only on products where we can leverage our strengths'' in engineering, says Asustek CEO Jonney Shih. DARK PICTURE. All these, however, are bright spots against a generally dark picture in Asia and other emerging markets. Analysts are not sanguine about prospects for Russian stocks such as Lukoil, No.25, or Surgutneftegaz, No.106. They have been been hurt by the plunge in oil prices and the nearly 50% collapse in the Russian market this year. ''The next weeks will be critical'' for the Russian market, says Nomura Securities analyst Ruslan Nickolav, as the government negotiates with the International Monetary Fund for financial aid. While they haven't been hit nearly as hard, Brazil's Bovespa has fallen 10% and Mexico's stock index has plunged 29% in dollar terms since Jan. 1. In Brazil, banks and financial-service companies faced a difficult time after the government jacked up interest rates last October to 43% to support the real. Although rates have since fallen back to 21%, the economy is expected to grow just 1.5% this year. One standout in the financial sector, however, is Banco Itau, which rose from No.39 to No.19 on BUSINESS WEEK's list and lifted its market cap by 16%, to $7.7 billion. Itau, whose shares are up 10% so far this year, is one of the few bright spots on the Sao Paulo Stock Exchange. CEO Roberto Setubal has pleased investors by cutting costs and acquiring banks both in Brazil and Argentina. In Mexico, meanwhile, consumer spending has been fueling economic growth--notwithstanding the slump in the stock market. Although the government is keeping a tight rein on money and spending to compensate for the country's collapsing oil revenues, gross domestic product growth is expected to reach a healthy 5% this year. As shoppers head to the stores, companies such as retailer Cifra have benefited. Since 1997, it has leapt from No.56 to No.27 on the BUSINESS WEEK list, partly due to Wal-Mart's acquisition of a controlling stake. Now, Cifra is expanding its network of outlets outside Mexico City. Its sales are expected to grow some 33% this year. But the most spectacular performance by a Mexican company has come from Grupo Modelo, which produces Corona beer. Not only are Corona sales rising in Mexico, but the brand also overtook Heineken last year to become the leading import in the U.S. beer market. ''It's one of the few Mexican companies that has successfully launched a global brand,'' says Lars H. Schonander, head of Mexico research for Santander Investment. CEO Carlos Fernandez Gonzalez, 31, is planning to spend $300 million to expand distribution and production in Mexico this year. Will companies such as Grupo Modelo, Hellenic Bottling, and China Telecom (Hong Kong) remain winners if the crisis in emerging markets is prolonged? Asian, Russian, and Latin markets are continuing to witness an exodus of investors. Still, the BUSINESS WEEK list of the world's top 200 emerging-market companies shows that even in turbulent times, there are always companies that manage to survive, and even thrive.
By Kerry Capell in London, with Elisabeth Malkin in Mexico City, Jonathan Moore in Taipei, Ian Katz in Sao Paulo, and bureau reports RELATED ITEMS
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Updated July 1, 1998 by bwwebmaster
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