Mediterranean Renaissance Italy, Spain, and Portugal Regain Economic Splendor in the New Europe

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They're known collectively as "Club Med" among stock analysts, but the stock markets of Italy, Spain, and Portugal have lately shed their tendency to dawdle and dally.

Markets in the three southern European markets today have more zip than a Nordic ski jumper. "Club Med" stocks have soared in recent months, and their upward path points to high long-term returns, equity analysts say.

"Southern Europe is booming and outperforming all of Europe," says Daniel Bennett, director of Finantia Brokers in New York. But investors should wait until a minor correction calms these overheated markets, analysts say. "Let them come off a bit, and then jump in," Mr. Bennett suggests. If East Asia currently epitomizes the hazards of international investing, then the three southern European markets highlight the opportunities. From Jan. 1, 1997 until Feb. 4 of this year, Spain has risen in dollar terms by 36 percent; Italy by 53 percent; and Portugal by 74 percent. Safe from Asia The markets in recent months have lured a torrent of money from international investors seeking comparative safety from Asia's financial turmoil. Portugal and Spain are especially well insulated, since they don't export or invest much in Asia. They have also gotten a strong jolt from the planned roll-out next year of a common European currency, perhaps the most sweeping move ever in financial integration. The new currency, the euro, will also enable business in the comparatively small, lower-cost economies to more easily compete with their rivals in bigger European countries. The euro "will reduce the risk in trade and finance that is part of dealing in different currencies," says Brian Gendreau, an emerging-market analyst at Salomon Smith Barney in New York. The euro will also trigger mergers, both at home and within Europe. "We will see much more merger and acquisition activity, with the banking sector taking the lead," says Joan Gregory, manager of the Scudder Spain and Portugal Fund, a closed-end mutual fund. Investors may thank nothing more than dull discipline. The promised boon from the euro has compelled Lisbon, Madrid, and Rome to knuckle under to an new regime of restraint in their budgets. Otherwise, they wouldn't qualify to join the first group of countries to embrace the currency. Currency as catalyst All three countries have lived down reputations as big-deficit, big spenders by slashing state spending and quashing inflation. …