Forum Archive Index - April 2000

[NG <zinovii@ihug.co.nz>]

This is an article from todays NzHerald.

I think it is correct in general.

Regards,

 Zinovii.


 Very little logic in
                stockmarket drop

                18.04.2000 - 

                It's time for fundamental analysis to take centre
                stage again." So trumpeted an American
                investor as he poured scorn on those who had
                recklessly pushed the value of high-technology
                stocks to the stars - then panicked last week
                as those stocks began their return to Earth. 

                The American would doubtless feel a similar
                disdain for those New Zealand investors who
                yesterday acted with similar lemming-like fright
                as the local sharemarket slumped 4.7 per cent.
                So devoid of logic were their actions that even
                stocks which lately had been demonstrated to
                be undervalued were marked further down. 

                Air New Zealand "B" shares, for example,
                slipped 40c to $2.25, although Singapore
                Airlines had only days earlier been buying them
                at $3. Likewise, Fletcher Challenge Paper
                slipped to $2.26, although Norwegian company
                Norske Skog has offered $2.50 a share to buy
                the company. And where was the logic in
                Telecom shares being dumped 47c to $8.63
                when only a small part of its revenue is related
                to the new technology? 

                The fundamental undervaluing of New Zealand
                shares - a consequence of a long period of
                lethargy - and the relatively small number of
                high-technology stocks should have sheltered
                the local market from the deluge created by the
                bursting of the Amer- ican high-tech bubble.
                Panic, however, owes nothing to logic. When it
                takes hold, the most solid of stocks is not
                immune. 

                If there was carnage in Australia, it was rather
                more understandable. There, many a mining
                company has transformed itself into a
                high-technology stock, switching its speculative
                prospecting from terra firma to cyberspace.
                Unlikely alliances have been formed in the
                name of opportunism. 

                And, as in the United States, there was only the
                flimsiest of grips upon the reality and
                economics of Internet-related commerce. The
                true beneficiaries of the new technology had
                not been accurately discerned. Illogically again,
                newly listed companies suffered more than
                most when the axe fell on Australian
                high-technology stocks yesterday. Panic, not
                prospective earnings, determined their fate. 

                A more realistic assessment of such stocks will
                be the most obvious outcome of the tumult of
                the past few days. The danger is that the
                process, aided and abetted by rising interest
                rates, could send the American economy into
                recession. That country's astonishing
                economic expansion over the past decade has
                been fuelled by the wealth generated by its
                booming sharemarket. The momentum at one
                point led the Federal Reserve chairman to
                speak of irrational exuberance. 

                All stocks, especially those that are
                Internet-related, no matter their seaworthiness,
                rode the crest of the wave. Now the momentum
                has stalled, a victim of the reassessment of
                sky-high valuations and worse-than- expected
                but hardly grievous inflation figures. If the spring
                disappears from the American step, the rest of
                the world will slow down. The implications for
                New Zealand's export growth are obvious. 

                Wall St investors will quell global anxiety if they
                respond calmly and logically to the Nasdaq's
                9.7 per cent plunge last Friday - if they allow
                the fundamentals to again take charge, and if
                they recognise a return to reasonable
                valuations for what it is and shine a stronger
                light on more traditional and less speculative
                stocks. The reporting of many first-quarter
                corporate earnings this week should
                concentrate that focus by confirming the good
                health of leading companies. 

                Some New Zealand investors are clearly
                spooked by the possibility that panic will
                triumph over prudence and the probability that
                local interest rates will soon rise. Thus, they fuel
                the possibility of a major collapse. They also
                forget two of the most important lessons of
                sharemarket investing: that it is a long-term
                venture; and that a falling market offers the best
                buying opportunities. Some high-technology
                stocks will fall further but the fundamentals all
                point to a correction, not a calamity. 








                                              


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