Inflows for emerging markets

JAKARTA (JP): International investment firm Merrill Lynch estimates that liquidity will flow next year to emerging financial markets, especially the dollar-based markets of Asia and Latin America.

Inflows of investment funds would rise because of an expected drop in the world inflation rate, Merrill Lynch said.

"The world inflation rate should be lower in 1997 (3.7 percent) than at any time since the first oil shock in 1973," it said.

The firm expected the moderate interest rate environment to continue in 1997 which, together with low inflation, should encourage more investment in bonds.

The firm's economists and strategists recommended that U.S. dollar-based investors diversify their equity portfolio with up to 35 percent in non-U.S. holdings.

These remarks were made at a press conference in New York early this week.

Chief economist Donald H. Straszheim said the U.S. economy was in the best fundamental shape it had been in for 25 years. "The hallmarks of this exceptional state of affairs include slow growth, low inflation, moderate interest rates, rising corporate earnings and declining federal budget deficit," he said.

Chief investment strategist Charles Clough recommended financial, technology and energy sectors for equity investment.

He warned investors about a potentially sharp drop next year in short-term interest rates.

Chief market analyst Richard T. McCabe estimated that U.S. stock market gains would be lower next year than in 1996 and 1995.

Senior economist Martin Mauro said the bond market's coupon income would be more appealing than its capital gains.

"The five-to-10 year maturity range offers the best value in the treasury market, which will begin auctioning inflation- indexed bonds next month, for investors seeking current income," he said. (04)