Wednesday, January 09, 2002

The Positive Side To Nation Building

NEW YORK - Recent events may have taken a little of the luster off emerging-markets plays. In a December 2001 report, the International Monetary Fund identified weak commodity prices (namely oil), tourism declines and other problems threatening the outlook for developing economies. For 2002, the IMF predicts private direct investment in emerging markets will drop 12% versus 2001.

The picture, however, isn't all gloomy. A notable bright spot is China, whose economy the IMF expects to expand 7% in 2002. India and Pakistan, if they can avoid a war, also show promising growth prospects.

Another encouraging sign: Argentina's economic problems seem contained within its borders for the moment. "This is a very different world from 1997," according to Peter Hooper, chief economist at Deutsche Banc Alex. Brown. "I think people were better prepared this time around," says Hooper. Along with a new U.S. attitude of engagement, Hooper thinks the global effort by central banks to ease interest rates will help emerging economies.

Robert N. Phillips Jr., chief investment officer at Walnut Asset Management ($700 million in assets), looks for long-term secular trends with what he calls a "capital-spending tailwind." One such theme: the development of infrastructure in emerging economies.

"Lesser-developed countries are looking to get into the game," he says, "and to do that, they're going to have to develop their roads, highways, bridges and communications systems."

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