US funds shift investments from Orient to Europe

Europeans may complain about inflation, declining industries, high unemployment, and high United States interest rates stifling their economies, but some American investors think Europe looks like a good place to put their money.

The managers of mutual funds investing in international stocks have decided that, for now at least, the European economy is about as low as it can go. And the Far East, where so much of their money was going just a year ago, looks less attractive.

In some cases funds that once had over 60 percent of their portfolios in Far Eastern securities have cut those holdings to less than 30 percent. The money that once flowed to the Far East is now going to Europe, where investors see a few hints of recovery.

''Germany, Switzerland, and Holland were all hit badly by the recession,'' says Gavin Dobson, managing vice-president of Kemper, Murray & Johnston, the international subsidiary of Kemper Financial Service Inc. ''We are now seeing that cycle beginning to turn around.''

One factor contributing to this turnaround, fund managers agree, is a shifting of Europeans' attitudes toward their economic problems. After watching slowdowns in both exports and the birth rate, European governments have ''gotten serious'' about dealing with their economic problems, one fund manager said. At the same time, these governments are at least talking about devoting smaller shares of their gross national product to social programs.

The Far East, meanwhile, ''is seeing a period of consolidation, a checking period, if you will,'' Mr. Dobson says. The area is being helped into this checking period by such developments as protectionism against Japanese exports, falling commodity prices for Australian and Malaysian minerals, and a decline of world trade activity in Hong Kong and Singapore.

''In the short-to-medium term, the Japanese economy is very adversely affected by nervousness, over protectionism, and anti-Japanese feeling in Europe and America,'' said Mark White, vice-president at T. Rowe Price International Fund Inc.

Partly as a result of this, he said, the Japanese yen is caught in kind of a ''viscious circle.'' As expectations about Japan's exports decline, the value of the yen on international currency markets also declines. This makes it more expensive for Japan to import the raw materials it needs, and makes its exports more expensive, further lowering expectations.

In addition, the Japanese people have not made up for the drop in exports by their own purchases. One of the great consumer nations is getting saturated with its own consumer goods, which has further reduced the revenues of companies there, the analysts interviewed said.

''The GNP (gross national product) performance of Japan went sharply below expectations last year,'' said William Holzer, senior research analyst at Scudder, Stevens & Clark's International Fund. Japan's GNP dropped 3.5 percent in the last quarter of last year, he said. As a result of that performance and other factors, including protectionist sentiment against Japanese goods, ''we began to be a little more cautious.''

Caution is also the byword these days when fund managers talk about Australia. That great resource lode depends on industrial nations to use its products and world commodity markets to keep prices for those resources high. Lately, Australia has not been getting much cooperation on either front.

In Europe, meanwhile, analysts expect West Germany and the United Kingdom to lead a mild recovery after a long period of stagnation. Part of the reason has been the former weakness of European currencies. ''The deutschemark got so weak against the Japanese yen,'' Mr. Dobson said, ''that it made [West] German goods cheap in Japan. Now, Germany is experiencing an export-led recovery.''

The U. K. was the first to show signs of recovery simply because it was the first to go into a recession, Scudder analyst Holzer said.

In the Netherlands, Mr. Holzer said, government and corporate leaders ''realized that industries were. . .carrying too much overhead.'' Also, as unemployment has increased, the once-powerful labor unions ''have lost clout,'' making it easier to institute labor-saving measures. While these developments have not yet had much effect on the Dutch economy, they give investors hope for some progress in the future.

None of this progress can go very far, the fund managers agreed, without some signs of recovery from the US. The protracted battle between the White House and Congress over the budget has not helped.

''What happens in Europe turns on what happens with the US budget and interest rates,'' Mr. White said. ''Any European recovery can't get very far without some improvement there.''

Perhaps for this reason, fund managers have not left the Far East completely, though they have reduced their holdings there.

''Our overall portfolio has definitely shifted from the Far East to Europe,'' Mr. Dobson said. ''But I wouldn't say the Far East has come to the end of its growth.''

''I think that in the long term the total attraction for growth (in the Far East) will be greater than in Europe,'' Mr. White said. ''We haven't abandoned the great Eastern giant.''