Political Changes Bolster Stock Investments Abroad : Markets: Exchanges in Japan and Europe posted double-digit gains in 1989.
The planned 1992 unification of Europe and the opening of the Eastern Bloc created the prospect of economic opportunities that propelled major foreign stock markets to double-digit gains in 1989.
Investors worldwide scrambled to put money on the Continent.
U.S. investors pumped money into mutual funds that invest in Europe, and the Japanese set up their own stock funds invested specifically in West German companies, seen as the most immediate beneficiaries of the Iron Curtain’s collapse.
In the past two months, foreign appetite for German stocks has helped boost the Frankfurt market to an annual net gain of 35%.
But Germany’s market performance was not an isolated one. Key stock indexes in London and Milan also rose impressively, as did the world’s largest stock market, Japan.
Japan’s stock market seemed to be on a record-setting spree throughout the year. The 225-issue Nikkei stock index opened the year at a record high of 30,243.66; it finished the year Friday at 38,915.87, the fourth-consecutive day of record closings and a 29% gain over 1988.
Analysts in Tokyo said the market overcame a number of obstacles this year, including the death of Emperor Hirohito in January, political instability, currency fluctuations and fear of creeping inflation.
The market’s strength was underscored in October when the Nikkei failed to follow Wall Street’s precipitous Oct. 13 drop, when the Dow Jones industrial index fell 7.1% in value.
The key British stock index fell 3.2%, and the Frankfurt market lost 13.2% in response to Wall Street’s drop, but Tokyo shares declined only 1.8% before rebounding.
Despite the mini-crash, “the biggest event of the year is the opening up of Eastern Europe,” said Robert Rolland, executive vice president at Shearson Lehman Hutton Inc., in New York. “That’s definitely the theme going into the ‘90s, and it obviously overshadows any one-day drop in the stock market.”
In Frankfurt, the FAZ 100-share index rose 35% to finish the year at 740.90, up from 549.86 at the start of 1989.
Rolland characterized the recent buying of German stocks and stock funds--particularly by the Japanese--as “almost a frenzy.” Because German stocks typically are not split, their prices can become prohibitively expensive. Deutsche Bank, for example, is trading in the $490-a-share range.
But the Germany Fund, a closed-end mutual fund that trades on the New York Stock Exchange, can be had for $19 a share, Rolland said. About a year ago the Germany Fund sold for $6.625 a share.
In London, the Financial Times-Stock Exchange 100-share index finished the year at 2,422.7, up from 1,793.1 at the beginning of 1989. Investors were attracted to British companies because they have issued little debt in comparison to their American counterparts.
But volume was disappointing, prompting investment firms to cut costs through layoffs and other measures.
Elsewhere in Europe, takeover fever gripped France in 1989 and helped push the CAC-40 index up 27% on the year.
“Not only was it takeovers driving the market, but the possibility of takeovers . . . ahead of 1992,” when Europe will meld into a single, barrier-free market, Rolland said.
Among the larger deals, the bank holding company Cie. Financiere de Suez took over Cie. Industrielle and its insurance subsidiary Groupe Victoire for about $4.1 billion after a brief but bitter fight.
In Italy, the key BCI index rose 17%, to 687.44 on Friday from 589.72. Italy also is positioning itself for 1992, but the country’s overwhelming debt--which roughly equals its gross national product--has created drag on the stock market, experts say.
“There’s a perception of negativity” in Italy, said Guy Stern, an analyst at ABD Securities Corp. in New York. “They have to re-evaluate their national strategy and how they will expand.”
The Italian market began to rally in late May when giant Fiat announced a major share buyback program, but it stumbled later over an Italian bank’s unauthorized loans to the Iraqi government. The country was dealt a further blow when Fiat failed to strike a deal with the Swedish auto maker Saab, which instead allied itself with General Motors Corp.
The unheralded growth market was Spain. It is not yet attracting much foreign capital, and the Madrid General Index rose just 8% this year. But Stern noted that, except for Portugal, Spain has the fastest growing gross domestic product of any European country.
