AFTERMATH OF AN ASSASSINATION : A Crisis Can Lead in the Bulls

The tragic death of Luis Donaldo Colosio cast new gloom over Wall Street and other world markets on Thursday, pushing the Dow industrials down 47.88 points to 3,821.58 and virtually guaranteeing that prices on the Mexico City exchange will plunge 4% or more when trading reopens today.

But many big American and European investors, searching for perspective in the wake of Colosio’s assassination in Tijuana, were reminded Thursday of other recent political and social crises that have since become historical footnotes to bull markets.

Remember Tian An Men Square? When the Chinese ruthlessly quelled student unrest in the summer of 1989, Hong Kong’s Hang Seng stock index quickly plunged from 3,000 to 1,800.

Now, five years later, the Hang Seng is at 9,320--three times its level before the Tien An Men massacre.

By recalling the usually transitory effects of national tragedies on financial markets, Wall Street veterans admit that they risk appearing callous--minimizing the widespread human suffering such events can cause.

But the simple truth is that the successful investor generally is the one who keeps his or her wits when most others are losing theirs. “Your job as a money manager,” says Mark Howlowesko, research director for the Templeton mutual funds, “is to take advantage of fear.”

For current and would-be investors in Mexican stocks, the issue today will be whether share prices reflect too much--or too little--fear of a future without the 44-year-old Colosio, who most likely would have won the Mexican presidency in the August election.

The government said Thursday that the Mexican Stock Exchange would definitely open today, after Thursday’s closure in mourning of Colosio. The Bolsa stock index, which closed at 2,543.57 on Wednesday before Colosio was murdered, is expected to drop at least 4% at the opening because many Mexican stocks traded on the New York Stock Exchange dropped by that amount or more on Thursday.

While Colosio’s murder was a tremendous shock, however, analysts say the Mexican market may not be as vulnerable to a huge decline from its current level, if only because the Bolsa has already plummeted sharply from its all-time high of 2,881.17 on Feb. 8.

Investors in Mexico have already been jolted this year by a still-unresolved Indian uprising in the country’s southern Chiapas state, by the threat of a surprise presidential run by a rival to current President Carlos Salinas de Gortari, and by the kidnaping of one of the country’s leading bankers.

Moreover, the growth of the Mexican economy in 1993 was the slowest in seven years, raising concerns that the economy could easily be tipped into full-fledged recession. Corporate profits have fallen, and no recovery is expected before the second half of this year, assuming the economy picks up again.

All of this has weighed on stock prices. By late last week, with the Bolsa at 2,363.01, many U.S. money managers were arguing that the Mexican market could lose another 10% or so before stabilizing.

Yet there were signs on Thursday that foreign investors, at least, aren’t willing to let Mexican stocks go into a free fall from here, despite the political and social upheaval that may follow Colosio’s death.

In London early today, traders were talking about Mexican phone giant Telmex dropping as low as $53, from Wednesday’s close of $63.75 on the NYSE. But the stock’s low Thursday was only $58.25, and it rallied from there to close at $60.125, off $3.625 for the day.

In New York, an analyst at the U.S. branch of a major Mexican brokerage said most of his American institutional clients weren’t panicked about the Mexican market’s next possible move. “Most of them were just asking, ‘How are people in Mexico viewing this,’ ” the analyst said.

Ironically, he said, the brokerage’s Mexican clients were asking the reverse question--”How are foreigners viewing this?”

In fact, the foreign investors’ view may be much more important now than that of the Mexicans themselves. Much of the selling at the Bolsa so far this year has been by domestic investors, who have been far more worried about the Chiapas uprising, in particular, than their foreign counterparts.

Many foreign institutional investors, by contrast, have tried to retain their long-term view of Mexico’s promise, which has led them to push billions of dollars of direct investment into Mexico. It’s crucial that that money flow continue, because Mexico cannot grow without it.

Nicholas Bratt, director of global equities for the Scudder Funds investment giant, notes that “it’s very important to stress that Mexico has made fantastic progress over the last five years” in opening its economy and building an industrial base for future growth.

Colosio’s death, while painful for the nation, doesn’t undo the past five years, Bratt says--any more than Tian An Men Square undid China’s economic progress up to that point.

In Mexico City, an analyst representing a major European brokerage said Thursday afternoon that a conference call with 90 major foreign institutional clients earlier in the day revealed little panic, and much understanding of the risk-to-reward ratio in Mexico now.

“What we found was that foreign investors were prepared to hold on to their positions in Mexico,” said the analyst, requesting anonymity. Many of them, he said, have a difficult time believing they should run away from a market that now sells for about 13 times estimated 1994 earnings, making it the cheapest of any Latin American market.

What’s more, some analysts believe Colosio’s death could ultimately help Mexico by unifying his ruling PRI political party behind a successor presidential candidate, and by bringing more voters over to the PRI in sympathy. Fear of violence also could lead rival parties to tone down their rhetoric, allowing the public mood to calm. Government spending aimed at jump-starting the economy will probably be accelerated.

Templeton’s Howlowesko, who admits feeling queasy about the still-high levels of many global emerging stock markets today after their surge in 1993, said he was fishing for opportunities among U.S.-traded Mexican stocks on Thursday.

When the market was depressed last year on worries that the NAFTA treaty wouldn’t pass Congress, Howlowesko says he used those fears to his advantage, and bought Mexican stocks. “I’d use this as an opportunity as well,” he says.

But it’s important to add that Howlowesko isn’t a raging bull on the Mexican market overall. It’s more a stock-by-stock situation, he says, the way investing is supposed to work.

In their frenzy to own stocks in emerging markets in 1993, many investors forgot the inevitably high risk and thought only of the opportunities, Howlowesko says. If your outlook truly is long-term, that one-eyed view may work. The problem is that when trouble hits, and these markets plunge, many long-term investors turn out to be so in name only.

Mexico’s Market Turmoil

The Mexican stock market, closed on Thursday in mourning for assassinated presidential candidate Luis Donaldo Colosio, is likely to plunge when it reopens today, traders say. Yet many American and European investors don’t believe that this year’s political crises have damaged the country’s long-term economic promise. Foreign belief in Mexico is crucial, because the heavy flow of money into the country since the mid-1980s has helped rebuild the economy and fuel the stock market’s boom.

THURSDAY’S SELLOFF

How leading Mexican stocks traded on the New York Stock Exchange plunged on Thursday.

52-week Thurs. close Thurs. Stock high-low and change pct. chng. Empresas ICA 34 1/2-16 1/2 25 7/8, -2 1/4 -8.0% Grupo Tribasa 40 1/4-15 1/2 27 3/8, -2 1/8 -7.2 Emp. La Modrna 37 1/8-23 5/8 24 1/2, -1 7/8 -7.1 Telmex 76 1/8-44 1/4 60 1/8, -3 5/8 -5.7 Vitro 25-16 20 1/2, -1 -4.7 Mexico Fund 40 3/8-20 30 5/8, -1 3/8 -4.3 Coca-Cola Femsa 36 3/4-21 3/8 29 1/8, -1 1/4 -4.1 Grupo Televisa 73 3/4-53 1/4 56 3/8, -2 3/8 -4.0 Trans Maritima 12 7/8-8 3/8 9 1/8, - 3/8 -4.0 Grupo Serfin 37 1/4-23 1/2 25, - 3/4 -2.9

HOW FOREIGN CAPITAL HAS FLOWED IN

Foreign direct investment in Mexico annually since 1983: in billions of dollars: 1992: $37.47

THE STOCK MARKET’S LONG CLIMB

The Mexican Stock Exchange’s Bolsa index, monthly closes except latest: Wednesday: 2,543.57 Sources: Wefa Group; Mexican Investment Board

When JFK Was Slain

Assassinations and other political and social crises can wreak havoc with financial markets in the short run, but their effects can blow over with surprising speed.

When word of the attack on President John F. Kennedy reached Wall Street on Friday, Nov. 22, 1963, the stock market began a free fall. The New York Stock Exchange closed early, but not before the Dow Jones industrial average had plunged 21.16 points, or 2.9%, to 711.49.

The market was closed on the following Monday for Kennedy’s funeral. When it reopened Tuesday, Nov. 26, fears of panic selling quickly dissipated. Instead, buyers swarmed, convinced that the policies of new President Lyndon B. Johnson could keep the economy moving ahead.

The Dow surged 32.03 points or 4.5%, to 743.52 on that Tuesday. The market continued to rally briskly in 1964, with the Dow reaching 874.13 by Dec. 31.