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February 21, 1994 12:00 AM

THE MARKETS WHERE PEOPLE ARE ASSETS

By Margaret Price
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    Breathtaking advances in some emerging stock markets last year - especially in Southeast Asia - prompted dismay among some would-be investors, who wonder whether they've been left hopelessly behind.

    On the face of it, such thinking might be understandable. Last year in dollar terms, the International Finance Corp.'s composite price index of 18 countries (in its investible index series) jumped 75.1%. In the most stellar example, Poland's small market (which isn't part of that index) rocketed more than 700% in dollar terms, according to the IFC; and Turkey's market jumped an astounding 217.9%.

    So why are emerging markets proponents still loudly beating their collective drums? Because, they say, the story is far from over. Although Southeast Asian markets as a region enjoyed a boom in 1993, some markets of Asia, most notably Korea's, performed less spectacularly (up 20.4%) last year, while many Latin American and some developing European markets appear to have more room for price appreciation this year. India's market - which gained "only" 24.1% in dollar terms last year - also seems poised for more upswing this year, as investors increasing salivate over such attractions as the country's huge population (more than 900 million people and a middle class that approximates in size that of the United States) and economic liberalizations.

    Indeed, more investors are beginning to appreciate that population assessment is a good way to choose emerging, or any, markets for the long term. The rationale: as more low-wage countries increasingly attract direct investments from abroad, their cheap-wage advantage will decline as salaries begin to rise. Ultimately, as fewer countries fit the low-wage category, countries will rely more on their own domestic population for selling goods and services. The attraction, then, will be for countries with sizable indigenous populations whose wages are rapidly increasing.

    Which countries are these? In size of populations, they are, in descending order, China, India, Indonesia, Brazil and Russia - if you don't count the United States, which has the world's third largest population.

    By using this strategy, investors can avoid trading in and out of markets as their prices swing.

    There also are other strategies evolving - including the use of derivatives for the emerging markets - that can sustain and expand interest in emerging markets. As I point out in my book, "(W)hen a seemingly attractive market is hard to penetrate for regulatory reasons or because of supply limitations, institutional investors can consider synthetic or derivative products. These vehicles," while still in their embryonic development for the emerging markets, "can also be used to hedge a portfolio." As investors become more comfortable with emerging markets, they'd also like some market protection.

    Margaret Price, P&I's international editor, is the author of Emerging Stock Markets: A Complete Investment Guide to New Markets Around the World, newly published by McGraw-Hill Inc., New York.

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