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Hormats looks at world investments
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July 31, 1996: 11:09 p.m. ET
Russia, India, Pacific Rim discussed
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NEW YORK (CNNfn) - On CNNfn's "Expert Opinion" site you send in your questions and top analysts and experts will answer. Here are responses to some of your questions to Robert Hormats, vice chairman of Goldman Sachs.
"In terms of trade with Russia and the ex-Soviet bloc countries, to what extent do you think constraints of political risk and lack of hard currencies have been removed?"
"The issue of political risk looms larger in Russia than in most of Eastern Europe. Although Yeltsin won re-election, there are serious doubts as to whether he will be able to serve out his term.
"If he cannot, there is a serious risk of a wide- open election in which the reformers are deeply divided and the extremists prevail. That would be traumatic for markets in Russia and Eastern Europe as well.
"The prospects for political stability are considerably greater in most of Eastern Europe. All of these countries are subject to temporary foreign exchange instability but the export prospects of Eastern Europe have improved with their growing penetration of Western European markets."
"Why do people, including the experts, think that investing in Pacific Rim markets provides diversity to their portfolios? Every time the Dow sneezes, the Pacific markets seem to catch cold."
"It is true that volatility in the U.S. markets also tends to produce volatility in other markets but, as the recent period indicates, the markets of that region proved to be nowhere near as volatile as the U.S. markets. Moreover, over the longer run the combination of high savings, high investment and high growth should lead to strong market performance in many of these countries.
"Of course, investors should also bear in mind the possibility of political risk, occasional overheating, and occasional difficulties in obtaining adequate information of companies in emerging markets before making investment decisions."
"What do you think about investing in India? Is it a good time to invest there, and what are the best companies to invest in? What about currency risks?"
"India continues to be on the path to market reforms. The new government is attempting to further reduce the budget deficit and to attract investment, although there are members of the cabinet who want to place greater emphasis on redistribution of income and subsidies.
"Recent decisions to decontrol the price of oil will contribute to higher inflation. That, in turn, could cause the currency to weaken.
"It is difficult to recommend individual companies. The average investor who does not have access to timely and thorough research should investigate mutual funds dedicated to Indian stocks. For the small investor it might be prudent to wait to see how the policies of the new Indian government shake out before making substantial commitments of funds, even though over the longer term there might be some profitable investment opportunities."
"Is this a good time to get out of stocks and into bonds--both corporate and treasury?"
"Between stocks and bonds, the former have provided higher rates of return over the years. Market timing as to when to shift is always difficult, although in the period ahead a modest or, if one is conservative, greater than moderate shift of portfolio-weighting from stocks to bonds appears prudent . But in the long run, history indicates that investors can look to stocks for a greater returns."
Watch for more responses to your questions in "Expert Opinion."
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Goldman Sachs
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