NEW YORK -- After a stellar 1999, Japanese and Pacific region funds have fallen on hard times. Indeed, the categories have experienced a complete reversal of fortune in the space of nine months.
At the close of last year, mutual funds that include the stocks of Japanese and Pacific region companies led all global sectors in terms of performance. Now they are bringing up the rear.
Consider the numbers: Japanese funds racked up average gains of 119.7 percent last year, and Pacific Region funds followed closely, growing at an average rate of 92.2 percent, according to Lipper Inc., a Summit, N.J., firm that tracks mutual fund performance.
But through September of 2000, Japanese funds had fallen 19.4 percent for the year, and Pacific region funds were down 24.7 percent.
A quick look at the year-to-date performances of most overseas stock indexes reveals the reason investors have pulled money out of most international funds. Tokyo's Nikkei index is down about 16 percent for the year, and London's FT-SE 100 index is down about 9 percent.
"If you look at the foreign indexes, many of them are now dominated by technology and telecommunications companies, and those sectors have had a rough year," said Kunal Kapoor, a senior analyst with Morningstar Inc., a Chicago-based research firm.
Mirroring last year's stock market dynamics in the United States, Japan's high technology sector soared in 1999 based on optimism that so-called new economy companies were reshaping global markets.
Kevin Harris, an international economist with MCM CurrencyWatch in New York, said young Japanese investors turned to technology stocks with the same enthusiasm seen in the United States.
Nonetheless, as 1999 ended many analysts warned that technology stocks were wildly overvalued and that a crash was imminent. It came last spring, knocking nearly one-third of the value off the tech-focused Nasdaq stock market.
Harris said the impact on the Japanese stock market was even more severe than in the United States because technology was the only Japanese sector that still held investors' confidence given Japan's decade-long economic slump.
So when investors pulled their money out of Japanese tech stocks, rather than moving it into other sectors they simply pulled it out of the country altogether.
Optimism ran high for Asian economies in 1999 following a dramatic downturn in the fall of 1998, when currency devaluations swept the region and investment dollars dried up.
Yet many investors felt the silver lining to the economic debacle was that it cast a needed light on systemic problems inherent to Asian business practices, including lax banking policies toward collecting debts from huge companies with close ties to Asian governments. Consequently, money poured into Asia last year in the belief that things could only get better.
But while debt restructuring was a major focus of the International Monetary Fund's Asian assistance package, many problems still remain, and investors have grown wary again, according to Harris.
For example, many huge Asian conglomerates still have cozy relationships with their governments, a fact that leaves foreign investors with the distinct impression they may not be operating on level playing fields, Harris said.
The bottom line, though, he added, is that most Asian economies simply haven't emerged from their slumps as rapidly as investors had hoped.
Japanese investors should take heart, however, since all global funds are down in 2000. As a group, world equity funds are down 11.2 percent year-to-date, according to Lipper.
Funds that focus on the stocks of Canadian companies were the only global category to gain ground during the first nine months of 2000, rising 23.5 percent.
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