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Helping to Meet the Growing Demand for International Investments By Keith W. Rabin For almost a decade, U.S. and international investors who ignored the basic tenets of portfolio theory -- which urges diversification into different asset classes - enjoyed the best returns. Favoring large cap U.S. blue chips, which offered the perception of security or high-octane technology plays that promised to enrich all brave enough to throw caution to the wind, investments in international and emerging markets, value-oriented themes and small and mid-sized cap firms suffered in comparison. In recent months, however, we are seeing some interesting changes. The ongoing cleanup of late 1990s speculative excesses, combined with the impact of September 11th, have caused a major blow to market confidence. Compounded by the Enron and other accounting scandals, this changing sentiment has tarnished the illusion of a "Fortress America" and a belief in an ever rising U.S.-dominated technology sector. Previously neglected areas such as consumer goods firms, retailers, and industrial firms now outperform complex multinationals and focused, cash-flow positive small to mid-cap and value-oriented names are deemed preferable to speculative growth-oriented companies that operate largely on promise and faith. Interestingly, investor worry about the U.S. has lead to a renewed interest in markets that have been largely ignored in recent years. Emerging markets including Korea, Russia, Indonesia and Thailand are now among the best performers in the world. Some analysts are now pointing to the potential of other under-performing asset classes such as small companies in Japan. This is a far cry from what we had been hearing in the aftermath of the 1997 Asian financial crisis. At that time investors nervously wondered when the storm clouds of contagion would wash up on U.S. shores. This fear, combined with troubles in Russia and LTCM in 1998, prompted the Fed to deliver rapid rate cuts to an already overheated economy. Combined with rapid inflows of foreign capital that sought to benefit from a flight to quality -- U.S. equity markets surged as if they were on amphetamines. It is now obvious; however, that this speculative era is over. U.S. interest rates if they don't remain static -- are more likely to rise than decline further. Therefore, investment advisors and television talking heads now increasingly talking about "diminishing opportunities" in the U.S. and the potential benefits of international diversification. A look at the fundamentals reveals the logic behind their reasoning. The U.S. has been actively benefiting from deregulation, restructuring and reorganization for over two decades. Many countries in Europe, Japan and the emerging markets have all or most of these gains before them. Therefore, while the U.S. economy is now showing some glimmers of hope, with many forecasting an end to recession, few if any believe we will see anything remotely approaching the heady growth we enjoyed until about a year and a half ago. Simply put, growth is not likely to deliver sufficient momentum to ignite top-line earnings growth and there is insufficient room to cut costs to make up the difference. The rest of the world, however, is by and large a different story. As more rapid momentum is achieved in the areas of banking and corporate reorganization -- there is more potential for rapid appreciation. To give one indicator, in 1982 Former U.S. Treasury Secretary William Simon initiated an LBO of Gibson Greetings. Many acclaim this to be the start of U.S. restructuring efforts. At that time the Dow Jones index stood at about 800. More than a decade later in 1995, before the start of the speculative dot.com era, it had appreciated to over 5,000. This was largely driven by restructuring, reorganization and introduction of technological and other efficiencies - the same type of measures now being urged on, and beginning to rake root around the world. While it may be early to allocate capital to the macro indices, it is clear there are many micro opportunities emerging. For this reason KWR International recently moved to organize a small company investment conference featuring a select group of eight promising small Japanese firms. This event was held in NY on March 12th and attracted over 200 investors, analysts, journalists, executives and other interested individuals. Detailed information on the agenda and conference proceedings is available at http://www.JSCIconference.com . This conference was organized as a result of the many inquiries we have been receiving from individuals and institutions, who have been receiving the KWR International Advisor and materials we have been developing for clients concerning a wide range of international trade, financial and economic issues. Many have noted they clearly recognize the potential of investments outside the United States. But they have also highlighted the challenges they face in their efforts to identify and access specific opportunities that offer the potential to improve their investment and corporate performance. With this in mind, we began seeking ways to assist in this process. We recognized the growing demand for international investments among U.S. corporate and financial investors who lack the resources and global networks of major financial institutions. At the same time there is a growing number of public and private companies around the world who recognize the need to internationally diversify their investor base and to create alliances in key foreign markets, but who lack the individual scale and resources needed to organize credible efforts by themselves. Through arrangements with venture capitalists, financial and service professionals and promotional partners, we sought to identify, prescreen and promote a portfolio of promising firms. In addition to providing the array of services normally provided by a public/investor relations firm, our objective has been to create a structure that can provide hands-on support and the essential preparation and follow-up needed to complete successful transactions and achieve ongoing success in international markets. Based on our initial success we are now speaking with a growing number of companies, venture capital firms, brokerage and securities houses, investors, government agencies and other entities that are interested in participating in initiatives of this kind. These inquiries have been coming -- not only in respect to opportunities in Japan - but from interested parties all over the world. We appreciate this interest and look forward to hearing from more of you as we move to further develop this concept moving forward.
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Editor: Dr. Scott B. MacDonald, Sr. Consultant Deputy Editor: Dr. Jonathan Lemco, Director and Sr. Consultant Associate Editors: Robert Windorf, Darin Feldman Publisher: Keith W. Rabin, President Web Design: Michael Feldman, Sr. Consultant Contributing Writers to this Edition: Scott B. MacDonald, Keith W. Rabin, Uwe Bott, Jonathan Lemco, Jim Johnson, Andrew Novo, Joe Moroney, Russell Smith, and Jon Hartzell
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