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NASDAQ's 'Healthy' Bloodbath Three experts offer their opinions on the U.S. sell-off--and how it affects Asia January 6, 2000 Web posted at 5 a.m. Hong Kong time, 4 p.m. EDT Click here for current data on world markets from CNNfn And so the NASDAQ corrected. Made a most stunning descent, fraying nerves, wreaking Hang Seng havoc and sending global bourses into a treacherous tailspin. Well, you could put it that way. Bloomberg branded it a "bloodbath." CBS Marketwatch called it alternately "carnage," a "slaughter" and a "tsunami." Reuters, ever-British, pertly labeled it a "reality check." Interestingly, the analysts they quoted used the word "healthy" to describe yesterday's sell-offs. Obviously, opinions diverge. Here are a few:
Q: As we speak, the NASDAQ continues its fall for the second day. When's it going to stop? A: Your guess is as good as mine. But the most dominant reason for this correction is that everyone has made a lot of money, and it's time to take some profits. Interest rates are an issue and I think Y2K is an issue in the sense that people have realized that they won't know instantly what the Y2K fallout is until the second, third week of the month. But basically, there has never been a sector so volatile as the Internet. If you believe in it -- and you see the long-term value -- you're not going to sell. If you're an investor who says, fine, it's risen 200% or 300%, now is the time to take profits. That's fine. But don't be surprised when the stocks you've sold keep on rising. Q: When you put a 12-month price target on a stock and then watch it triple the next week, what are you meant to think? (Except Damn! I'm prescient.) A: Analysts generally set conservative price targets. Look, take the Internet services and e-solutions market in Asia ex-Japan. In 1998 it was a $450 million market. In 2003, we predict it will be a $4.5 billion market. And before you ask me how I come to these conclusions, let me explain how we get to these forecasts. Let's take Singapore. There are 95,000 registered businesses in Singapore and 4,700 of those businesses have websites. Those businesses have spent, already, an average of U.S. $100,000 establishing their Web presence. So... Q: There's a long way to go, a lot of money to be made. Scott Blanchard, head of sales trading, ABN Amro: Q: So Scott, worried yet? A: Look, any time a market falls 7% you have to be worried. But I am still of the opinion that your risk remains missing out on the upside, rather than being down on the downside. Investors had almost gotten excited about the impending fallout from Y2K, and it sort of deflated their spirits, made investors feel counterintuitive when everything went so smoothly. Q: Like Greenspan's nomination for a fourth term? A: That's going to bring us back fairly quickly. All I've been reading implies that Greenspan was going to be hamstrung politically into keeping interest rates down. This is really a moot point now that he's been nominated--that factor is out of the picture. I mean, I never thought--and this is going to sound a bit like I'm idolizing the man, though I'm certainly not the only one guilty of that--that he would put personal ambition ahead of the economy. We will have to believe that he will act aggressively, a hike of about 50 basis points in February, and maybe another 25 basis points a few months later. But the market can handle that. In fact, if people are focused on interest rates they're going to be even more aggressive in implementing technological change. By next week the spin will be "Greenspan acts quickly and engineers a soft landing." Q: What if the NASDAQ continues to fall? A: Come on, throw me a frickin' bone here... how low? Q: 3,000. A: Then I buy CMGI and U.S. Interactive. But even if that happens the biggest risk in Hong Kong is from sentiment, because Hong Kong is so cashed-up right now. We're not a leveraged economy the way we were in '93 and '94, the last time we had these big interest rate worries. Q: Why did Taiwan, with its heavy tech influence, rally today? A: Taiwan has one of the least correlations with Wall Street of any market in Asia. There's probably a lot of foreign buying, and certainly retail money wants to go in. And some things made gains. Q: At some point, you have to sell, right? A: Everything ultimately becomes a bubble when stagnation sets in. In tech it will be when the sector runs out of new ideas that justify continued expansive valuations. David Webb, Hong Kong-based editor of the reality-check heavy Webb-site.com and consummate tech bear: Q: So, how about that NASDAQ correction? A: Yes, the NASDAQ has fallen to a two-week low. Q: But it's the biggest fall in history! A: In point terms. It's a lot easier to measure market movements in terms of points, as opposed to percentages. In percentage terms, this is nothing. In percentage terms, today's 7.2% loss doesn't even make it into the Hang Seng's top-10 greatest falls. The biggest was 33.3% after the October 1987 crash on Wall Street. The NASDAQ has been trading at an average of 150 times 2000 earnings, so for them this is really nothing. Q: Morgan Stanley said it was changing Hong Kong's rating to "underweight" from "overweight" in its model Asia-Pacific portfolio, but that's about the only domestic factor driving today's "reality check." A: Well, we're Hong Kong, and our interest rates are basically dictated by U.S. interest rates, so it's natural we'd follow them. And you have to remember this is a stock market that's trading at a record high right now. The average PE ratio on the Hang Seng has been between 20 and 25. Historically, it averages around 13-15, and every time it's gone over 20 there's been a major correction. I think it's quite feasible, though, that when this bubble bursts we could come back down to nine or 10 times 2000 earnings before bottoming out. Q: Yikes! But will it? This is a technology correction, isn't it? The Hang Seng is not particularly tech-oriented. A: No, but technology and Wall Street and potential earnings have driven up all shares, despite the fact that property prices are down 50% off their peak in Hong Kong. And financials, who are busy underwriting all the IPOs these new Internet companies are planning, are going to suffer as well. I was an investment banker back in 1987; that's the way it works. Q: So if you're a fund manager, what are you overweight in? A: Cash. And if I absolutely have to hold equities I'd be holding safety stocks--power, gas, things that trade on a yield that's reflective of real interest rates that will generally outperform a falling market. But mostly cash. By Maureen Tkacik/TIME Asia Write to us at mail@web.timeasia.com Search for recent Market Q&As
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