To many investors, it sounds impossibly exotic to own shares in Malaysia, Thailand and Brazil. But the world is simply returning to an older style of investing, says George Foot, senior partner of Newgate Management Associates in New York. A century ago, before half the globe closed to foreign investment, funds commonly owned securities in Turkey, Argentina, Hungary, New Zealand, India, Uruguay. Then, as now, the less-developed countries were growing like weeds. The London-based Foreign and Colonial Government Trust Company – founded in 1868 and worth $2.5 billion today – sank a huge sum into an unstable nation that had just emerged from a shattering civil war, the United States.

“History has restarted,” Foot says. In recent years the number of people living in free (or free-ish) market economies has quintupled to 5 billion. Growth rates of 7 to 9 percent are plausible for modernizing nations, versus 2 to 3 percent for mature ones. “Investing in Asia is a must,” says Michael Stolper of San Diego, who evaluates money managers for clients. “They’re producing a second industrial revolution.” He calls Latin America a riskier bet because of its history of self-sabotage. But panics, scandals and political convulsions are as routine as tea and toast in the less-developed world. So far, the good years have more than paid you for the bad (chart), if you’ve been invested long enough. Emerging countries remain a buy as long as their governments pursue privatization, sound money and open trade.

How much of your equity investment should you send abroad? The standard advice is 20 to 25 percent in plain-vanilla places like Europe, Canada and Japan, and 5 to 10 percent in the exotics. Some thoughts on bottom fishing today:

Be sure the market is really down before buying in. Since devaluation, the Mexican Bolsa has plunged 52 percent in dollar terms but only 5 percent in peso terms. “So the bargains aren’t there yet,” says Grace Pineda, manager of Merrill Lynch’s Latin America Fund. But she likes Brazil, down 17 percent both in dollars and local currency and with strong economic fundamentals.

Don’t dither after a definite drop. No one knows where the bottom lies. The conventional wisdom says that you should invest small amounts over several months, to minimize your loss if prices slip further. But markets can turn around on a dime and gradualists may miss the bounce. Lump sums are pretty safe when you buy during panics and plan to hold for the long term.

Don’t quit when you’re behind. If you hold through a crash in your fund’s shares, you might as well stick around for the rebound. A cheaper peso, for example, boosts Mexico’s economic prospects, by making it cheaper for foreign companies to invest there. Emerging-market investors should figure on leaving their money alone for at least five years.

Consider well-diversified funds. San Francisco money manager Kurt Brouwer prefers funds that buy Europe and Japan as well as the exotics. A favorite: Warburg Pincus International Equity. Or try funds that invest in new markets worldwide, not just in Asia or Latin America. Ken Gregory of the No-Load Fund Analyst likes Montgomery Emerging Markets and Pimco Advisors Institutional Blairlogie Emerging Markets (available to noninstitutional clients through a discount stockbroker).

Consider closed-end funds. They’re listed on the exchanges like stocks and usually sell at discounts to the value of the securities they own. Foot is buying Asian funds with discounts of 15 percent or more. Two picks: the Thai Fund and the Emerging Markets Infrastructure Fund. SoGen International’s Jean-Marie Eveillard likes the India Fund at its present price.

Be wary of global bond funds. Those with the highest yields also carry the riskiest debt – for example, the Mexican bonds whose value was slashed by the peso devaluation. Foreign bond funds aren’t true income investments. They’re partly speculations against the dollar, partly gambles on capital gains.

Know thyself. Don’t buy risky securities with money that you need to live on. Stay away, too, if you hate riding speedy elevators down. You’ll fail in emerging markets funds unless you can really handle volatility. Mark Yockey, of the United International Growth Fund in Shawnee Mission, Kans., thinks today’s stock investors have learned to take price drops in stride. If you really stand pat or buy, this correction won’t last long.

In exotic markets, returns in the good years outweigh the routs. Best results come from stocks that are beaten down.

COUNTRY 1993 1994 1995* Turkey 220% -50% -6% Hong Kong 117 -29 11 Malaysia 110 -20 -7 Indonesia 106 -26 -5 Thailand 104 -9 -9 Sri Lanka 66 -3 -1 Pakistan 64 -7 -1 Argentina 58 -24 -1 Mexico 47 -43 -19

ALL RETURNS CALCULATED IN DOLLARS.

  • THROUGH JAN. 12, NOT COUNTING DIVIDENDS.

SOURCE; MORGAN STANLEY CAPITAL INTERNATIONAL

PHOTO: Don’t miss the next industrial revolution: A Malaysian factory

Subject Terms: INVESTMENTS, Foreign ; MUTUAL funds