1990-1995 DIVERSIFICATION WORKED
Global diversification proved effective in international portfolio investing due to:
Disparity in growth rates among major economies;
Brunt of world recession;
Relative inefficiencies in international portfolio investments (Emerging Markets Hysteria had yet to unfold)
* Fed raised rates 6 times for a total of 250 bps (Feb, Mar, Apr, May, Aug, Nov)
** The Peso Crisis and the Uprising in Chiapas
*** Capital Exodus from Mexico heightened triggered overall loss of confidence in Emerging Markets. This was compounded by the collapse of Barings Bank
GDP growth in industrialized nations: 1992= 2.1%, 1993= 1.4%, 1994= 3.3%, 1995=2.7%
1994-1996 TRANSITIONS
Broadening global recovery, US bail-out of Mexico, and the US entry into the "New Economy" paradigm all led to improved global market sentiment, which brought markets more in line.
GDP growth in industrialized nations: 1995= 2.7%, 1996= 3.2%
1997-2000 UNIFORMITY
As world economies begin to sustain their recoveries and cross-border protfolio flows accelerate, global stock markets move in tandem, making global diversification harder to achieve, simply based on geographical plays.
GDP growth in industrialized nations: 1997= 3.4%, 1998= 2.4%, 1999= 3.2% 2000 Forecast = 4.2%
Asia: Asian turmoil reverberates in global markets, one week after Hong Kong's stock market sufferred its biggest drop ever, losing nearly 25% in 4 days on uncertainty regarding the HKDollar.
Russia: Russia gets partial debt moratorium on foreign debt. Trading in Russian Rouble is suspended after Russian Gvt. Abandons setting a a floor value for the currency of 7.13 to the dollar, implementing a new floor of 9.5 to the dollar.
Brazil: Despite $41 bln IMF loan package to Brazil in Nov, the Lat Am nation devalues its currency after Head of regional State refuses to repay State debt.
January Tech Sell-off: Tech stocks get a beating on overvaluation worries, exacerbated by investors' unloading of stocks after New year to avoid capital gains tax.
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