London record as shares soar worldwide: American investors pour money into overseas bond and equity markets in quest for growth

LONDON share prices closed at a record high yesterday as American investors continued pouring funds into stock and bond markets in Europe and the Far East.

The FT-SE index of 100 leading London shares closed 15.6 points higher at 3,100.8. This just topped the previous record set last month, although the index fell almost 16 points from its intra-day high after profit-taking. The index has risen almost 100 points in a fortnight.

Stock markets in Frankfurt, Hong Kong and Zurich all closed at new peaks, while Sydney reached levels not seen for six years. Tokyo, Paris, Johannesburg, Bangkok and Singapore recorded strong gains. On Wall Street, the Dow Jones Industrial Average was up 12.57 points to 3,599.83 in mid- afternoon trading.

Bond markets also performed well, with long-dated gilts gaining 3 4 of a point as German bunds also forged ahead.

Wall Street analysts said that a growing outflow of US funds was one of the principal factors driving stock markets higher. President Yeltsin's victory over his parliamentary opponents earlier this week was being used as the latest excuse for the outflow, but analysts said the trend has been underway for at least the past two months.

The prospect of lower European interest rates and a resumption of economic expansion in the next 18 months was seen as the main reason for US funds shifting into Europe. A further attraction is the huge French privatisation programme. But Latin American and Asian markets are being pushed up by the perception that labour markets there are more competitive than in the industrialised world.

'In the background is the very high valuation of financial assets in the US and an outlook of very low growth,' said Michael Metz, strategist for Oppenheimer and Co. 'This is exactly the opposite of what you have overseas.'

Some analysts said that a record 40 per cent of the dollars 10bn monthly inflow into US mutual funds - the American equivalent of unit trusts - was now being placed overseas. In addition, domestic funds and pension funds were also increasingly placing money in overseas markets.

'Portfolio managers that heretofore never invested overseas are now considering it,' said Ralph Acunpora of Pru-Bache. 'This is a cultural change which will continue. The big buzzword in town is going global, which of course includes the US, which means Wall Street won't suffer.'

Mark Howdle, of J P Morgan in London, predicted a good six to nine months for European markets. He said the combination of high savings and abnormally low interest rates in the US and Japan meant that 'money is sloshing out into Europe'. He said a second wave of liquidity could emerge next year as domestic investors in Europe shifted their portfolios.

David Schulman, chief equity strategist of Salomon Brothers, added: 'US investors are thirsting for growth. This is a slow growth economy, so they are looking overseas for expansion.' He added that European, Asian and Latin American markets were climbing higher in the performance ratings for global equity markets.

Some analysts warned that there was the potential for setbacks. A renewed crisis in Russia or the collapse of the Gatt or North American free trade talks could buffet the latest climb in global stock markets.

George Magnus, of Warburg Securities, said the flow of US funds was being complemented by Japanese investment in gilts and bunds. But he added that the US investors were likely to continue diversifying out of their home territory for some time. 'Europe is still offering the yields,' he said.

(Graphs omitted)

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