International News 17/08 – Look to old world for growth

Europe will become the place to invest as it rises from the doldrums and the US economy starts to tail off, according to Scudder Kemper Investments joint head of global equities Nick Bratt.

Bratt is in Australia to hold discussions with the local Scudder team, which has recently expanded and supplies global resources research and investments for the group, and for parent company Zurich Financial Services.

"Economic forces in Europe have been converging for some time for the introduction of a single currency and economic zone. While there has been problems with the Euro, it is now easier for European business to work and export and harder for external competitors to break in," Bratt says.

The other factor driving the engine of growth in Europe is the continuance of merger and acquisitions in Europe and the results of rationalising industry.

"This activity in Europe has been higher than the US for the first half of this year and the momentum is still increasing. This is creating price transparency and a greater competitve environment and from an investment point of view is very exciting," Bratt says.

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"While Europe is still at an early stage in rationalising industry compared with the US we see this shake-up having an effect for at least the next five to 15 years.

Added to the potential growth which lies ahead for Japan and we are certainly not forecasting a recession."

Asia is also positioned for enormous growth in the next five years, according to Bratt, with Korea and China restructuring and no longer acting as dampeners in the region. At the same time the traditional centres of Hong Kong, Singapore and Taiwan have strong economies which will offset the drag created by a slow moving Japan .

Bratt says that with the changes of the last decade investors should be more upbeat about the future and the development of the global economy.

"It is worth remembering that we are living in the best possible worlds with the end of the Cold War, no major wars and many of the flash points being resolved," Bratt says.

"Democracy and capitalism have won the day and the Internet is democratising the world. Hopefully we can expect those countries which are lagging to join the party."

Fee battle

A battle has erupted in the US over the old financial planning chestnut: fee for service vs commission. According to Financial Planning magazine in the US, the CFP Board has proposed a disclosure rule which critics say will create a class structure among planners, setting the stage for a pricing war that commission-based professionals can't win. Commission-based advisers say a few fee for service advisers sitting on the Board of Governors are trying to ram their philosophy down the throats of the masses. The changes to the board's ethics rules were proposed for comment last month and would require financial planning practitioners to make timely disclosures of amounts and types of compensation to clients.

T + 1 to come

The settlement of shares is likely to become a lot faster in the next few years. According to a report by the US-based Securities Industry Association, the US equities market is likely to get to T+1 settlement by 2004. The move is likely to save the financial services industry about US$2.7 billion and cost about $8 billion to develop, according to the eFinancialNews Web site.

ING bolsters business

The broking arm of Mercantile Mutual's Dutch parents, ING Barings, has agreed to buy the UK's Chaterhouse securities for $US325.8 million to extend its European equity business. ING Barings became the favoured bidder over KBC Bancassurance Holdings of Belgium and France's BNP Paribas SA after it raised its bid to $US307 million. Analysts initially predicted the business would fetch $US256 million. ING Barings has been bolstering its European equities business by acquiring stockbrokers from Belgium's Banque Bruxelles Lambert SA and BHF-Bank AG of Germany.

Sector funds thrive

Sector specific funds are all the rage in Australia and data coming from the US suggests the same thing is happening there. Inflows into sector-specific mutual funds in the US have reached unprecedented levels, accounting for 44 per cent of all inflows into the industry in the first five months of this year, according to Financial Research Corporation. Inflows into sector mutual funds comprised 20 per cent of the industry's total in 1999 while before 1998, they never accounted for more than 5 per cent. Sector funds have taken in $US44 billion this year compared to $US29 billion in 1999.

Credit Suisse on top

Credit Suisse Asset Management's Swiss parent has overtaken arch rival UBS to become Switzerland's biggest bank following a surge in its share price which has given it a market capitalisation of US$61.3 billion compared with UBS's US$57 billion.

Last month UBS agreed to buy US brokerage house PaineWebberfor $US12.4bn,

however, the deal failed to trigger a re-rating of UBS shares which are now trading at a sizeable discount to those of Credit Suisse. When UBS merged with Swiss Bank Corporation just over two years ago its market capitalisation was nearly a third higher than that of Credit Suisse. However, the latter's shares are now trading just below their all-time high while UBS's shares are still nearly 25 per cent below their all-time peak.