Notes

I was on a business trip in the US a few weeks ago. The first person I usually meet in a city is the cab driver from the airport to downtown. In New York he was Russian. After a brief conversation he talked about his portfolio of Microsoft and Intel shares. ''You can't go wrong. I pay the education of my baby daughter with these shares.''

In Kansas City he was Eritrean. After a while he talked about his portfolio of Microsoft and Intel shares: ''My village gives me money to invest here.'' In Los Angeles he was Guatemalan. You guessed it. With an extra twist: he had borrowed the maximum available on his credit cards to finance his portfolio.

The other thing is the UK property market. Some people bought property in the right parts of London or Edinburgh two to three years ago, and they now think they are Masters of the Universe.

The moral is this: when Everyone Knows how easy it is to make money from a stock, property, or asset, it is usually a warning bell for investors. The surest way to be burned in the long run is to ignore rigorous valuation methods. Then one is in line with common wisdom and easily succumbs to the panicky temptation to chase a market because ''everybody else is getting rich''.

This syndrome also operates at the far end of the spectrum. Some people gladly own an asset that has quintupled in price in three years but fear to touch one that has fallen 80% over the same period. While a hugely appreciated asset is not necessarily expensive, nor a bombed asset necessarily cheap, sometimes markets fall so far that they present excellent medium-term recovery potential.

Many Japanese and other Asian assets are in this category, as are arguably energy prices and some commodities - victims of so-called deflation.

Investors might ask themselves whether their portfolios of heavily-appreciated Anglo-US shares stack up favourably against a world background of far cheaper assets?

At Blairlogie we tend to avoid both extremes. In our developed market portfolios, 75% of the assets are invested in Europe, where we are witnessing a virtuous circle of low interest rates, deregulation, micro-economic changes, and a corporate earnings boom. Most of the stocks we invest are in large-capitalised, well-known names such as Peugeot, Siemens, Benetton and Unilever. Only 13% of our investments are in Asia.

In our emerging markets portfolios, 50% of assets are invested in Latin America, 35% in Europe/Middle East and the balance in South Africa, India, and Taiwan. In emerging markets we also invest in locally large companies such as Telefonica (Argentina), Cemex (Mexico), Ford Otomotiv (Turkey), and Hellenic Bottling (Greece).

We do not want to be in the position of the character at the beginning of this article and find out that we inadvertently own a company. Or worse, a country! There has been no exposure to Asian emerging markets in 1998, other than India and Taiwan.

The critical question for global investors in the next two years will be when to time re-entry to Asia. There are potentially big rewards for investors with patience and a reasonably high pain threshold, but they may have to wait for a while.

In some ways it is easier for private investors than for institutions to take this decision, because they do not have the quarterly performance tables to worry about. Nobody thanks an institutional investment firm for being right two years early.

Right now, there is a real risk of deflationary forces spreading globally from Asia. The highly competitive Asian export machine has yet to get into gear, after which Western corporate earnings are likely to be hit. Investors will need to watch this carefully as it unfolds over the rest of 1998. In the meantime there are strong investment themes to be played out in European and Latin America. We remain optimistic for the time being.

n Gavin Dobson is chief executive of the Edinburgh-based international fund managers Blairlogie Capital Management