PERSONAL INVESTMENT Opportunity in Europe

Press, 11 December 1989, Page 14

PERSONAL INVESTMENT Opportunity in Europe

By

DAVID MUNRO,

of Spicers Financial

Services, in Christchurch The year 1989 will be remembered as the year the barriers between West and East in Europe started to crumble. Thanks to a firm push by Gorbachev, Eastern European governments are falling like dominoes. With the West now claiming an ideological victory over communism, the effects will be farreaching. In time the economic consequences of this dynamic political event will be huge. Analysts are still grappling with the issues but most agree the longer term effect of an enlarged Europe must be positive. In Eastern Europe, there are certain to be vast investment and marketing opportunities in previously closed markets. And in the West, the effect of immigation of young, skilled workers can only be beneficial. Even ignoring this merging of West and East, the European Community offers a favourable environment for investors. Consider these comparisons of the EC single market as it is envisaged in 1992. EC US Japan GNP SUSSSOOB $48508 $U526508 Population 370 M 250 M 120 M Sharemarket capitalisation (Dec, 1988) SUSIBBBB 524818 SUS3B4OB In the view of Robert Fleming Asset Management, European stockmarkets offer investors the opportunity to take advantage of significant undervaluation. • A number of European economies, particularly those of southern Europe, are still relatively immature and are undergoing rapid industrial development. • At the same time the more mature economies, particularly West Germany,

are considerably undervalued in stock market terms relative to other leading industrial economies such as Japan and the United States. • Value anomalies also exist in Europe due to varying accountancy standards and practices, poor quality research and a historic lack of investor awareness. • There is considerable evidence that the revaluation of markets has already begun. In view of all these factors, Flemings argue that corporate profitability willbenefit over-all. Supporting this claim is a recent analysis that sugests that the abolition of trade and other barriers, competition, efficiency and economies of scale will together boost Europe’s GNP by 4.7 per cent to 5 per cent. An economic boost of that magnitude, based on fundamental gains in productive efficiency, must be good news for investors. Flemings may well be right that these markets are underrated. As with any restructuring, there will be casualties. The keys to successful investing in such a changing market are to spread across a range of companies in the industries and markets with the best prospects, and to keep a very closewatch on developments. A diversified exposure, through an on-the-spot manager, would appear the best way to capitalise on this opportunity. The next article will look at retirement planning and how much it takes to achieve financial independence. Spicers Financial Services is the financial planning and investment advisory division of the international accountancy firm, Spicer and Oppenheim.