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June 15, 1998 01:00 AM

SOCIAL SECURITY REFORM IN BRAZIL FACES MORE DELAY

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    RIO DE JANEIRO, Brazil -- Challenges that have yet to be voted on could delay social security reform in Brazil until late this year despite passage June 3 by the Chamber of Deputies of the long-awaited legislation.

    In mid-May, the Chamber, the lower house of Congress, approved key provisions of the social security amendment, including one that links payouts to those now in the system to age and length of contribution (Pensions & Investments, June 1).

    But opposition party-led challenges to parts of the amendment measures -- most of which aren't likely to pass -- and government-decreed regulatory legislation must be voted on before it is signed into law. If those aren't voted on in the next few weeks, President Fernando Henrique Cardoso's signing of the social security amendment into law could be delayed until late this year because of upcoming elections and World Cup games.

    U.K. lowers basis for pension calculations

    LONDON -- The U.K. government lowered the basis for calculating pension assets under its minimum funding requirement, making it easier for pension funds to maintain higher equity allocations.

    Under the change, effective June 15, the basis for calculating equities will be changed to the net yield on the Financial Times-Stock Exchange Actuaries All-Share Index from the gross yield on the index. As a result, the benchmark figure is being reduced to 31/4% from 41/4%.

    The change "will basically make it more favorable to have equities. Pension funds won't be writing assets down so much," said Nick Horsfall, a senior investment consultant with Watson Wyatt Worldwide, Reigate.

    The July 1997 elimination of tax credits for U.K. pension funds on advanced corporation tax makes the change necessary, experts said. The ACT change also has encouraged U.K. companies to pursue stock buybacks and other special cash distributions. Combined with sharply higher FTSE levels, the effect has been to lower dividend yields.

    "The changes correct a distortion in the results which was causing increasing concern to employers and their advisers, because it was affecting the amounts which employers needed to put into their pension schemes, and the amounts paid between schemes as transfer values," said Mike Pomery, deputy chairman of the Faculty and Institute of Actuaries' pensions board, which advised the government on the change.

    However, Mr. Pomery said a decision on whether to take the more radical step of altering Great Britain's method of calculating plan assets to a pure market basis from one based on dividend yields is "12 to 18 months" down the road.

    Asian emerging markets set for recovery

    BOSTON -- Asia's emerging markets are set for a recovery, said Mark H. Madden, portfolio manager of the Pioneer Emerging Markets Fund.

    According to Pioneer data, since 1981, all emerging market declines greater than 45% were followed by an upside move of about 93% in the first six to 12 months and approximately 250% in the 36 months subsequent to the decline.

    "Emerging markets in Asia have experienced a substantial short-term rebound since the middle of January," Mr. Madden said. "Although institutional investors can expect further volatility in these markets, the odds are that this short-term rally could develop into an extended recovery."

    Russian stocks at bottom of performance in May

    Russian stocks plunged 39.4% last month as economic and political problems hit home. Overall, 26 of 28 emerging markets in the Morgan Stanley Capital International Emerging Markets Free index posted losses, returning -14% in U.S. dollar terms.

    Other poor performers included: Pakistan, -37.9%; Indonesia, -34.5%; and Thailand, -28.5%. The only positive performers were Israel, 7%; and Morocco, 5.4%.

    Developed markets stayed relatively even, losing 0.6% in May. The biggest gainers were: Germany, 7.1%; Belgium, 5.9%; and Austria, 5.6%. Far Eastern markets continued to suffer, declining 7% overall. The worst losses were in Singapore, where the free index posted a -19% return, while Malaysian indexes returned -17.8%.

    New equity report spotlights Asian companies

    NEW YORK -- Morgan Stanley Dean Witter introduced a global equity research report, The Asian Edge, identifying the 110 Asian companies the firm's analysts believe are most likely to survive current economic turmoil. It also spotlights 50 companies with an edge "but not in the price" and 20 timely investment ideas.

    "We believe the time is right to start searching for the Asian companies with a competitive edge. It is too early to call a bottom in Asia, but investors should proceed with utmost caution in combing through these troubled markets," said Vineet Nagrani, co-director of Asia/Pacific research.

    The firm's 20 timely ideas are: Asia Pulp & Paper; Beijing Datang Power; Bridgestone; DBS Land; Fuji Photo Film; Hindusian Lever; Housing Development Financial; HSBC; Kao; Qingling Motors; Sankyo; Shin-Etsu Chemical; Siliconware Precision; SmarTone; Sony; Sumitomo Bakelite; Sun Hung Kai Properties; Taiwan Semiconductor; TDK; Tokyo Ohka Kogyo.

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