PORTFOLIO TALK LOOK TO THE FAR EAST AND LATIN AMERICA
By AN INTERVIEW WITH MAURITS EDERSHEIM Manager of SMITH BARNEY INTL. EQUITY PORTFOLIO John Wyatt

(FORTUNE Magazine) – As befits a man born in Holland, the first foreign stock Maurits E. Edersheim bought when he was a young investor on Wall Street was Royal Dutch/Shell. That was in the late 1940s, when only the intrepid invested overseas. Today Edersheim, 75, is deputy chairman at Smith Barney Shearson and head of its $1.3 billion International Money Management group. The $325 million International Equity Portfolio, the only one of his group's three mutual funds that is open to U.S. investors, has returned 37% so far this year and an average of 23% annually over three years. By contrast, the Morgan Stanley EAFE index of stock markets in developed countries is up 13% over the same three- year period. Edersheim tells Fortune's John Wyatt what markets look promising now.

How much of his or her portfolio should an investor have in foreign stocks? Maybe 15% to 20%, provided you are not going to need the money in the short term. The economies of the Far East and Latin America are growing so much faster than those of the U.S. or Europe. I'm not pessimistic on America, but if you look out for yourself, you can make a lot of money in the more rapidly growing economies of the world.

Should you worry about currency risks? We are mindful of the impact of currency fluctuations on our stocks, but our priority is to get it right in terms of the company and the country. We try to find the cheapest growth stocks, regardless of where they are. If you pick the ; right stock, currency is not as important as it seems. The Mexican peso depreciates 3% to 4% a year, for example, not a big deal compared with the average annual appreciation in the Mexican stock market of over 50% since 1988.

What's the story on the Far East? The growth is unbelievable! In every respect, Southeast Asia is the fastest- growing economy in the world. I am speaking here in particular of southern China and Hong Kong, Singapore, and Malaysia. The slowest economy of the four -- Hong Kong's -- is projected to grow about 5% this year and in 1994. As the economy and exports accelerate, personal income rises and a middle class emerges. We like other parts of the world, but this is the area we find the most interesting. There is some risk about the outcome of 1997, when Hong Kong comes under Chinese control. But the long-term future is very, very exciting. You can see it in a place like Shenzhen, just across the border from Hong Kong. In ten years it has exploded into a city of millions. One way to participate in the growth of southern China is through Shun Tak Holdings in Hong Kong. ((Shun Tak, like most of the other stocks mentioned in this column, does not trade in American depositary receipts, and your broker must buy it for you on the local exchange.)) It owns a high-speed ferry service from Hong Kong to Macao and also develops residential and commercial properties in China. Though it has lagged behind the Hong Kong market because of general uncertainty about real estate, it is up 44% this year. It offers long-term appreciation from the property market combined with a steady stream of cash from the ferry service.

Tell us more about Singapore and Malaysia. Singapore is emerging as the service center for Southeast Asia. A company we particularly like there is Cerebos Pacific, a very well-run regional packaged- food producer. One of its products, Brand's Essence of Chicken, is enjoying phenomenal success throughout Asia. We're also enthusiastic about GK Goh, a Singapore brokerage firm that is a clear beneficiary of the rising investor interest in Singapore, Malaysia, and Hong Kong. In Malaysia we own Technology Resources Industries, the leading cellular telephone operator, with over 225,000 subscribers. They are broadening their business with telecom ventures in Cambodia, Zimbabwe, and China.

What else do you consider attractive? We have substantial investments in Latin America. In Mexico, there is dramatic improvement under President Salinas, who has brought inflation down from 30% to less than 10% in three years. Our favorites include Maseca, an industrial supplier of tortillas, and Grupo Carso, which is available in ADRs and is an excellent broad-based play on the economy. Carso has holdings in auto parts, mining, retailing, and tobacco. It is the major shareholder in Telefonos de Mexico, which we own too. Telmex, also available in ADRs, always serves as a good proxy for the entire Mexican stock market. Generally speaking, we think telecommunications companies are very attractive for long-term investors. A lot of these emerging markets need basic services. Besides Telmex, we recommend Telefonica de Argentina, a phone company that has been recently privatized and should see tremendous gains in productivity. The Argentine stock market is volatile, but the government is allowing pension funds to buy more stocks, which should make prices more stable.

CHART: NOT AVAILABLE CREDIT: FORTUNE CHART CAPTION: ONE OF HIS PICKS SHUN TAK HOLDINGS