Analysts Foresee Strong Returns in Emerging Markets

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BOSTON -- Investors in the emerging markets are used to volatility after getting battered in 1994 and 1995, and then recovering some of their losses last year.

This year is off to a fast start -- but it's early yet.

The average stock mutual fund investing in the emerging markets rose 9.57 percent in the first quarter, after rising 11.22 percent in 1996, reports Lipper Analytical Services Inc. Josephine Jimenez, for one, is staying bullish. Jimenez, senior manager of the $1 billion Montgomery Emerging Markets Fund, said it's realistic to expect 20 percent returns. "After some difficult years, we have reached very attractive valuation levels in these markets," Jimenez said. The average company stock in the emerging markets is trading at about 14 times earnings, economies are growing at an average 6 percent rate and interest rates are falling in many countries, Jimenez said. Given this backdrop, the emerging markets should do well, she said. The Montgomery fund is up 10.39 percent so far this year, ranking No. 40 of 97 emerging markets funds tracked by Bloomberg Fund Performance. The best-performing emerging markets mutual fund is Lexington Troika Fund, which concentrates investments in Russia and is up almost 45 percent. To be sure, almost two-thirds of this gain came during January, before the Russian market began to stagnate. The other top performers are funds managed by Morgan Stanley & Co., Merrill Lynch & Co. and Trust Co. of the West, which invest in Latin American stocks, according to Bloomberg Fund Performance. "Investing in the emerging markets isn't a short-term proposition," said Ian Wilson, editor of Micropal Emerging Market Fund Monitor in Glen Allen, Va. "You have to be willing to ride out the storms, and I wouldn't expect more than 17 percent annual returns over the next five years." The average emerging markets fund soared 72.2 percent in 1993, and then fell 9.6 percent in 1994 and slid 4 percent in 1995, according to Lipper Analytical. The Montgomery fund was up 58.66 percent in 1993, down 7.72 percent in 1994, down 9.08 percent in 1995, and then up 12.32 percent last year. Today, Montgomery Emerging Markets Fund has about one fifth of its assets, or about $200 million, invested in Brazilian stocks, Jimenez said. …