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Bearish? Not Our Pros


Where to Invest in 1998 -- Strategies for Stocks: GLOBAL FORECASTERS

BEARISH? NOT OUR PROS

A BUSINESS WEEK panel prefers overseas markets to the U.S.

After a monetary crisis in Thailand threatened to melt down world markets, baffled investors got a crash course in risk. That's why BUSINESS WEEK decided to take its annual Fearless Forecast survey global. We asked experts at banks, brokerages, and mutual funds to tell us how markets will perform in 1998--and to name their favorite stocks.

A panel of 15 pros agreed that the volatility in emerging markets is likely to change the way U.S. investors view the world. Says Wilbur L. Ross Jr. of Rothschild Inc.: "Institutions will become more risk-averse, reversing their recent mad rush into obscure foreign markets." According to our pros, this bodes well for U.S. equities. On average, our panel predicts that the Dow Jones industrial average will hit 8567 by the end of 1998, up a modest 8% from its Dec. 15 level of 7922.

TEAMING UP. Most pros are bullish on Europe. Henrik Strabo, American Century's vice-president for international equity investments, believes the advent of a common currency will bring more consolidation in financial services. Sandy Nairn, director of global equities at Templeton Investment Management Inc., likes British manufacturers. Many such outfits earn a big slice of profits from exports, so they are out of favor because of the strong pound. "Many are trading at around 10 times 1997 earnings with growth rates in the low double digits," says Nairn, who sees these companies doing even better if sterling weakens.

But serious bargain hunters are likely to be found scouring the battered bourses of Asia. Even though economic growth in the region is predicted to slow, many experts think Asia is a value investor's dream. For example, David R. Mannheim of MFS World Equity Fund is finding companies with little to no debt that trade at a fraction of their pre-crisis price-earnings ratio. One is New Straits Times, a newspaper group in Malaysia that is "oversold."

Some London forecasters see Japan coming out of its eight-year bear market. Gilbert de Botton, head of GAM Global Asset Management, Michael Hughes of Barclays BZW, and Rustom Jehangir of Malabar Capital all believe the Nikkei stock average will climb above 21,000, vs. 15,909 on Dec. 15. Barton Biggs, chairman of Morgan Stanley Asset Management and a leading Wall Street bear, thinks Tokyo and Hong Kong "could have substantial rallies in 1998. They have fallen so much that most of the bad news must have been discounted." If investors are fleeing overseas markets now, will they turn out to be disappointed? Tune in this time next year when we find out how our global forecasters have fared.By Kerry Capell in New YorkReturn to top

TABLE

BW'S 1998 International Market Forecast

TORONTO MEXICO'S BRAZIL'S

300 COMP. BOLSA BOVESPA

NAME/FIRM INDEX INDEX INDEX

CURRENT LEVEL* 6585 5008 9550

JONATHAN L. AUERBACH Auerbach Grayson & Co. 7700 6200 11100

BARTON BIGGS Morgan Stanley, Dean Witter 6000 4500 11000

JAMES CLUNIE Murray Johnstone Intl. 7000 5500 9800

SHEILA H. COCO Fiduciary Trust Co. Intl. 7500 5900 12000

GILBERT DE BOTTON Global Asset Management 7700 6500 13000

LEILA HECKMAN Salomon Smith Barney 8010 6610 12773

MICHAEL HUGHES Barclays BZW 7200 5000 11000

RUSTOM JEHANGIR Malabar Capital 7000 6000 11500

SARAH KETTERER Hotchkis & Wiley 7500 4000 7700

DAVID R. MANNHEIM MFS 6800 5500 12400

RICHARD PELL Bank Julius Baer 7500 6700 13000

WILBUR L. ROSS JR. Rothschild 6250 5500 10000

C.D. TURNER IDEA 7200 5400 10000

EDWARD YARDENI Deutsche Morgan Grenfell 5600 4500 7000

CONSENSUS 7068 5557 10876

LONDON'S FRANKFURT JAPAN'S

FTSE 100 DAX NIKKEI

NAME/FIRM INDEX INDEX INDEX

CURRENT LEVEL* 5121 4029 15909

JONATHAN L. AUERBACH Auerbach Grayson & Co. 6300 3200 21500

BARTON BIGGS Morgan Stanley, Dean Witter 4500 3500 18000

JAMES CLUNIE Murray Johnstone Intl. 5300 4200 17500

SHEILA H. COCO Fiduciary Trust Co. Intl. 5400 2600 18200

GILBERT DE BOTTON Global Asset Management 6100 5000 20000

LEILA HECKMAN Salomon Smith Barney 5414 4890 18600

MICHAEL HUGHES Barclays BZW 6000 3850 22000

RUSTOM JEHANGIR Malabar Capital 5800 3800 21000

SARAH KETTERER Hotchkis & Wiley 5000 3000 17000

DAVID R. MANNHEIM MFS 5300 4450 18200

RICHARD PELL Bank Julius Baer 5950 4800 16000

WILBUR L. ROSS JR. Rothschild 5000 4000 15000

C.D. TURNER IDEA 4200 3400 17250

EDWARD YARDENI Deutsche Morgan Grenfell 4000 3500 13000

CONSENSUS 5304 4142 18089

HONG KONG

HANG SENG FAVORITE

NAME/FIRM INDEX STOCK

CURRENT LEVEL* 10435

JONATHAN L. AUERBACH Auerbach Grayson & Co. 12300 Gazprom

BARTON BIGGS Morgan Stanley, Dean Witter 14000 Morg. Stan. Asia

Pac. Fund

JAMES CLUNIE Murray Johnstone Intl. 12500 Cheung Kong

SHEILA H. COCO Fiduciary Trust Co. Intl. 12500 Henkel

GILBERT DE BOTTON Global Asset Management 11000 Intel

LEILA HECKMAN Salomon Smith Barney 14580 Petrobras

MICHAEL HUGHES Barclays BZW 10500 Glaxo Wellcome

RUSTOM JEHANGIR Malabar Capital 13000 Lloyds Bank

SARAH KETTERER Hotchkis & Wiley 14000 New World

Development

DAVID R. MANNHEIM MFS 12000 New Straits Times

RICHARD PELL Bank Julius Baer 9700 Euro. Warrant Fund

WILBUR L. ROSS JR. Rothschild 10000 News Communications

C.D. TURNER IDEA 7750 Spire Corp.

EDWARD YARDENI Deutsche Morgan Grenfell 8000 Travelers Group

CONSENSUS 11559

* As of Dec. 15

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