From C to D in markets

In the second of our series on investment in the world's emerging economies

Colombia

Coffee, coal and flowers are important export earners and so, unfortunately, is cocaine. Narcotics-related crime makes the most violent society in the world. The government puts employment at 9 per cent; the true figure may be nearer 30 per cent. Little wonder that foreign investors are discouraged; the n stock exchange has been one of the world's worst performers this year - down 13 per cent in sterling terms.

Apart from investor uncertainty, there are, however, no fundamental economic problems. Interest rates are low and the country's oil industry is thriving. The government's privatisation programme seems set to continue with the approval of four more power plants and, although the risk of trade sanctions remains real, a recent lifting of the ban on extraditing drug traffickers should dramatically improve relations with the US, which accounts for more than a third of Columbia's foreign trade.

Of the 200 or so companies listed on the Bogot, Medellin and Cali stock exchanges, recent best performers include Argos, the cement manufacturer, and beer producer Bavaria. Financials such as Bank Canadero and Banco Industriale Columbino also rank among brokers' current favourites.

Czech Republic

Since its peaceful split from Slovakia in 1993, the Czech Republic has been transformed from one of the most centralised to one of the most market- oriented of former Communist countries. A voucher system, introduced in 1992, permitted all adult Czech citizens to bid for shares in the newly privatised industries, and created a fully-fledged equity market almost overnight.

The country has a well-developed industrial sector in which the car maker Skoda, now controlled by Volkswagen is rapidly outgrowing its dubious reputation.

Tourism is an invaluable source of hard currency - nearly 100 million tourists visited Prague in 1995. Concern remains, however, over inadequate corporate disclosure, a lack of transparency in prices and lack of stock- market liquidity.

GDP growth is estimated at more than 5 per cent in 1996, though unemployment is virtually zero in Prague, for example - and the scarcity of labour put a damper on competitiveness.

Inflation at 9 per cent has not helped the 1,800 companies listed on the Prague stock exchange, which were among the world's worst performers during the past year, showing overall returns of -12 per cent.

But Glen Wellman, the managing director of Credit Suisse's Central European Growth Fund, believes that, with the market trading on 10 times earnings (which is cheap by European standards), the future is not too gloomy.

Telecoms companies such as SBT are in favour and a predicted increase in capital spending may also prove a fillip to engineering companies such as Skoda Pilsner, and CKD, the railway and tram manufacturers. Because so many small companies were privatised so quickly, the market as a whole is still fragmented - the brewing sector, with household names such as Budwar and Pilsner, being no exception.

Bass, the UK brewing group, which owns a majority stake in Prague Breweries, is currently engaged in a battle for control of Radegast, the country's second biggest brewer. The move should presage further merger and acquisition activity and may attract the foreign investor interest which is so critical for the market.

Denmark

The economy appears, after a temporary halt, to be recovering earlier than most other economies in Western Europe and gross national debt is among the lowest in Europe.

Unemployment of 10 per cent or so remains a problem, as do the costs of sustaining the government's generous social welfare programme - at 50 per cent, the tax burden is the highest in Europe.

The 250 listed stocks on the Copenhagen Stock Exchange have returned 12 per cent during the past year, and Adrian Farthing at Hill Samuel believes the market should continue to perform on the back of stocks such as TeleDenmark. The banking sector benefited from the successful flotation of BG Bank; clothing retailers such as Carligry and In Wear are on the buy-list.

Scrutiny of the shipping sector is essential: A-P Moller's two companies, DS 1912 and DS Svenberg, account for an unhealthy 12 per cent of the entire market's capitalisationn

Performance statistics: Datastream. Many investment and unit trusts cover Latin America, including . Robert Fleming (Jersey) runs the Czech & Slovak Investment Corp.