NEW YORK -- Europe is more important than Asia in terms of U.S. corporate profits, according to a Morgan Stanley Dean Witter & Co. analysis.
Asia's economic crisis won't affect U.S. corporate profits as much as widely believed, contends Joseph P. Quinlan, global economics analyst, who wrote the analysis.
"There is growing evidence that the impact of Asia's economic crisis (on U.S. corporate earnings) will be offset by a cyclical rebound in Europe," he wrote.
"Several companies reported higher than expected fourth-quarter earnings," he wrote, citing strong or rising demand in Europe "as factors that more than compensated for Asia's weakness."
The companies are Microsoft Corp., General Electric Co., Whirlpool Corp., Compaq Computer Corp. and Procter & Gamble Co.
Investors who are "focused solely on the fact that Asia accounts for one-third of U.S. exports may overestimate the impact of Asia's travails" on international profits of most U.S. multinationals.
In-country sales of U.S. foreign affiliates are a better measure of global exposure, Mr. Quinlan wrote: "Exports are a secondary measure of global exposure. In-country sales are determined by foreign direct investment."
On a historical cost basis, roughly 50% of U.S. foreign direct investment "is geared toward Europe," he wrote, while "Asia accounts for less than 9% of the total."
Europe "accounts for nearly 55% of total in-country sales of U.S. foreign affiliates. Asia, in contrast, represents less than 19% of total in-country sales of U.S. foreign affiliates."
Worldwide, U.S. in-country sales totaled $1.8 trillion in 1995, according to the latest available data cited by Mr. Quinlan. Exports totaled $576 billion for the same year.
Thus exports, while large, accounted for only 24% of aggregate global sales in 1995. Roughly 75% of what U.S. companies sell to the world "is done locally through foreign affiliates, not through exports," he noted.
He called exports "a flimsy measure of global engagement."
