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
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
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