It's U.S. investors, not the economy, that worry Europeans

PARIS -- Some analysts here are telling would-be European investors to be wary of America's high-flying stock market because of the lack of sophistication among many of those who have recently bought shares for the first time.

U.S. economic conditions could hardly be better, they say, but the psychological danger signals are starting to flash red.

Paris financial consultant Frederic Luizet said he is most worried by the fact that "Wall Street has entered the phase when neophytes have started to play the market, lured by the prospect of quick, ever-growing profits. In the past, that traditionally has been the moment when the markets begin to go sour." Specialists have taken note of Federal Reserve Chairman Alan Greenspan's repeated warning last week that the record high level of U.S. stock prices may be "unsustainable" because the pressure of rising labor costs might trigger inflation that could put a brake on expansion. European experts agree with Greenspan that there is little imminent threat of a significant economic downturn in the United States. But many are concerned about the danger of "some unforeseen event panicking investors," according to Geneva-based economist Jean-Luc Pinault, a specialist in stock market fluctuations. A "troubling" development -- a war in an economically sensitive region like the Middle East, the sudden death of a major political leader, a jarring economic row between the United States and Japan or the European Union -- can never be wholly discounted, Pinault observed. "Lesson number one in considering the stock market is that sooner or later something unwelcome will happen," he said. And the higher the American stock market goes, the less it will take to push the panic button, he added. Pinault pointed out that the "investor base" in the United States is vastly broader than in Europe, where dealing in stocks and bonds remains the preserve of a comparatively small and distinctly affluent group of people. In countries such as Germany and the Netherlands, for example, most stock dealing is done by banks. "There is much to be said for the broadly based participation of Americans in the stock market," he said. "But the presence of so many unsophisticated investors of modest means has a downside: It makes U.S. markets more vulnerable psychologically to bad news." Thus, when stock market selloffs in America occur, they tend to be worse than in Europe, he said. "European investors wait out the storm while Americans rush for shelter." As a consequence, Pinault said a growing number of brokers on the continent have begun advising clients to invest in European stock markets rather than Wall Street, although Europe's overall economic outlook, plagued by high unemployment, is problematic. But other analysts disagree, arguing that the typical U.S. investor is likely to put money mainly into mutual funds where the risk is spread out over a large number of companies. "The notion of the small investor instantly losing his nerve when the market sells off is outdated," Paris stock broker Yves Grandmaison insisted. "The way in which (the U.S.) markets have snapped back after recent turndowns is proof that the average investor there has good nerves." Grandmaison said he regards Wall Street as a "good bet for the foreseeable future and I'm still recommending it to my clients. It will go higher for some time to come." The U.S. stock market's breathtaking climb was justified by the speed with which American companies have restructured themselves since the early 1990s to take account of technological and managerial innovations, he added. "For once, stock prices in America seem to be an accurate reflection of a concrete economic situation," he said.

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