BUSINESSWEEK ONLINE : SEPTEMBER 11, 2000 ISSUE
BUSINESSWEEK INVESTOR A Talk with a Global Strategist Nick Sargen on the new rules of the game In an era where an earnings blip for a tech bellwether roils markets worldwide, the job of market strategist has become a real juggling act. Few understand this better than Nick Sargen. The global market strategist for J.P. Morgan's private banking division develops broad allocation policies for $80 billion in assets. Sargen, who has 30 years' experience as an international economist and global money manager, talked with BUSINESS WEEK Senior Editor Jeffrey Laderman and Staff Editor Lewis Braham. Q: How has your outlook toward global markets changed since the start of 2000? A: It's been a volatile year, but when you look at most markets around the world, they're flat or down slightly. So it has been an exciting ride, but a ride to nowhere. And our expectation is more of the same for the balance of the year. Q: How have the rules for global investing changed? A: In the past, I used a traditional top-down, country-by-country approach when providing investment advice. Today, markets are much more interlinked. The best example is Europe, where you now have the integrated European market of 11 nations with the same exchange and interest rates. So if you're making investment decisions about Europe, portfolio managers are doing what they do in the U.S. Here they don't say: ''What's my California exposure vs. New York?'' They say: ''How much tech stock exposure do I have? How much financials? Health care?'' Because of this new way of thinking, if there's a sell-off now in U.S. tech stocks, that has ripple effects around the world. Conversely, we saw recently, Nokia, one of the best names in technology, a Finnish name, sold off--and tech names throughout Europe, the U.S., and Asia also dropped. Q: Nokia is so big it isn't really a Finnish or even European company anymore. What other companies would you put in its league? A: It really comes down to, what are the areas where we're seeing multinationalization of companies? Telecommunications is more globalized. The same is happening to financial-service and pharmaceutical companies. Switzerland's Roche Group and France's Axa have a global reach that affects other companies in their sectors. Q: If global markets are moving in tandem, does it still make sense to diversify abroad? A: There are still benefits to diversification. The question is: How do you achieve them? You don't have to be invested in Europe for the sake of being invested in Europe, but if you want to invest in technology companies, why limit yourself to just U.S. companies? You really need someone to help you identify where investment opportunities are in particular industries around the world. Q: Yet your latest research report recommends overweighting Europe. A: Profits and currency are the reason. Traditionally, European companies have lower returns on equity than U.S. ones. But as a result of corporate restructuring and tax cuts, the outlook for European profits is improving. The other advantage is currency. The cheap euro has been a disappointment, but it does make it easier for European businesses to compete with the U.S. and Japan. Q: Given that outlook, what European countries are you recommending? A: Very tough. Maybe you could make a case for Germany, because German tax reform is the most significant in post-war history, yet we haven't seen a huge market reaction. Are other European countries going to watch Germany make a major restructuring move and not follow suit? The U.K. is also interesting. It's not formally part of the European Monetary Union--yet. So it's somewhat cheaper than the Continental markets. Q: Now that we have truly global companies, how does currency come into play? A: Now that we have more multinationals, a company's head office may not be located in the country where it generates a lot of its revenues. Clearly, the impact of currency is much more difficult to discern. You have to know how much revenue is generated within the home market and how much is in a different currency block. Q: Which individual stocks do you recommend? A: In technology we are focusing on Internet infrastructure companies such as Cisco and Sun Microsystems. Another area that we've been very high on is fiber optics. So we like Nortel and JDS Uniphase. On the European front, Alcatel is a name that is increasingly a global player in this sphere. In pharmaceuticals, we like Pfizer, Pharmacia, and a Japanese company called Takeda Chemical. We also like beaten-up sectors such as property-and-casualty insurance and chemicals, but most of those are U.S. companies. Q: What about Asia? A: Asia is somewhat country-specific because of political issues, but even less so than in the past. Last year emerging Asia was one of the top-performing regions of the world. Japan had a huge bounce as well. More recently, these markets have all sold off. What's going on? While fundamentals are gradually improving throughout the region, what really took off last year were tech stocks. So the catalyst for the sell-off this year was the Nasdaq. The difference is, while the U.S. and European markets stabilized after the sell-off, the Japanese market is still under pressure. Foreign investors are worried Japan isn't restructuring fast enough. So Japan is a tricky call right now. I'm not worried that it will dramatically sell off further. The harder issue is, what will be the catalyst for it to go higher? In the past, foreign investors have been the catalyst. But foreign investors now want to see some signs of domestic investors going in. Q: And Latin America? A: There's no doubt that you see very close linkages to the U.S. because it's the most important export market for the region. But here again, you can't forget country, because we're not talking about the integration of Latin America as we're talking about the integration of Europe. The classic example: Mexico's move to democracy is a positive for its market. This is the first time we've had an election in Mexico, not only where the opposition won, but where we didn't have a peso crisis. And we're not anticipating one. Mexico's currency is on much firmer footing now. Click here for a video interview with Nick Sargen _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The New Global Investor CHART: Global Markets Are Growing Fast...Shrinking the U.S.'s Dominance...And Internet Use Abroad CHART: The Case for Global Sector Investing Conquering a Slice of the World TABLE: Spanning the Globe All Abroad for Exchange-Traded Funds TABLE: How ETFs Stack Up against Their Rivals A Talk with a Global Strategist TABLE: Sargen's Picks VIDEO: Investing in the Global Village So Who Needs Foreign Investing? TABLE: Global Action Around the World in 80 Clicks TABLE: Going Global with the Web INTERACT E-Mail to Business Week Online

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