Internet Stocks' Drubbing Goes Global, Spurred by Recent Volatility on Nasdaq
By CRAIG KARMIN, HENNY SENDER and DOUGLAS APPELL
Staff Reporters of THE WALL STREET JOURNAL
Investors across the globe are turning against Internet stocks with a
vengeance, sending prices plunging for some of the same companies that
were lauded as the most visionary just a short time ago.
The world-wide technology drubbing has been building for nearly a month,
but it acquired new urgency this week as trading in Nasdaq Stock Market
issues succumbed to new extremes of volatility.
The biggest casualties in both Europe and Asia have been many of the
newly minted "dot-com" companies. Their limited revenue streams failed to
mute excitement during the initial-public-offering phase earlier this year, but
investors are suddenly abandoning them in the secondary market.
"I've already started lightening up on Internet and e-commerce stocks that
have no earnings and extreme valuations," says Vincent Willyard, a global
portfolio manager at Duncan-Hurst Capital Management in San Diego.
As fund managers run for cover, their actions are having a ripple effect that
could shape the future of the Internet sector in the weeks ahead.
Technology companies that count on a lofty share price as a currency for
acquisitions may find that this path to expansion is no longer available.
At the same time, pressure is building on hundreds of European and Asian
startups to delay their IPOs, or at least reduce the size or price of the
issue. Some have already succumbed: HSBC Investment Bank Asia said
Wednesday that ColbyNet, a Hong Kong retailer with a
business-to-business Internet strategy, would postpone its IPO until
market conditions improved.
"There's no way I'm going to buy an Internet IPO now," said Eric Ritter,
portfolio manager of the Driehaus Asia-Pacific Fund in Chicago and a big
buyer of IPOs and technology shares last year. "You have to go back and
take another look at the Old Economy stocks."
For all the tough talk, the re-evaluation of technology shares hasn't been
entirely on the downside: Prices for Taiwanese hardware manufacturers
and Indian software makers are steady, even higher, as they join select Old
Economy names as safer harbors amid the Internet storm.
Moreover, Nasdaq's relative calm Wednesday offered some hope that the
fiercest winds may have passed.
But after this week's mayhem, analysts suggest, some of the underlying
assumptions about a global high-tech investment strategy are being
reconsidered.
Says Brian Gendreau, an emerging-markets equity analyst at Salomon
Smith Barney in New York: "People who've been buying technology
companies across the globe in hope of diversifying their portfolios, will not
hold out that hope anymore."
In Asia Wednesday, New Economy stocks in Japan were among the
bigger losers. "The New Japan is being massacred," says Jonathan Bolton,
a director with Schroder Investment Management (Japan) Ltd. in Tokyo.
"Thanks to what has been happening on the Nasdaq, the panic of March
has extended into April at an exponential rate."
Among the hardest-hit were the shares of Internet investment houses
Softbank and Hikari Tsushin; Hikari shares have fallen by their daily limit
for three consecutive days, and have dropped by 75% since their high in
mid-February.
Hong Kong tech stocks hardly fared better. At the height of Internet mania
in February, people lined the streets of Hong Kong for the chance to buy
the IPO of tom.com. Wendesday, investors queued for the opportunity to
discharge the unfashionable stock, sending the share price down 16% to
9.05 Hong Kong dollars.
Hongkong.com, meanwhile, indicated last week it intends to make an
acquisition that it planned to finance with cash and new shares. Ten days
ago such an announcement would have boosted an Internet company's
share price. But instead, Hongkong.com's share price has dropped. The
company listed at 1.88 Hong Kong dollars last month but closed
Wednesday at HK$1.61.
The fall in the share price of Pacific Century CyberWorks has even
sparked talk that its planned takeover of Cable & Wireless HKT in a
cash-and-stock deal could be in peril. The shares plunged 11%
Wednesday to HK$17.95 and are now 48% off their February high.
Before this week, fund managers believed that anywhere from 100 to 200
companies planned to list on Kosdaq, South Korea's second board. And
with many Japanese tech companies completing their first full fiscal year
last week and becoming eligible for a listing on Tokyo's new Mother's
board, dealers said they expected 70 listings in the next few months.
Many of these IPOs will still go ahead but investors are likely to be very
picky because they can no longer assume that such stocks will soar as
soon as they're listed. Those companies and their investment banks "are all
having very difficult conversations" now, said Scott Ferguson, the Hong
Kong-based head of equity capital markets with Salomon Smith Barney.
The theme is much the same in Europe, where the decision by T-Online to
reduce the offering price of its much-ballyhooed IPO due later this month
has damped sentiment. The region's secondary markets that rely heavily on
young technology-oriented companies are also floundering. France's
Noveau Marche tumbled 11%, while Frankfurt's Neuer Markt slid 4%.
Once white-hot IPOs have also fallen on hard time. Most notoriously,
World Online in the Netherlands closed Wednesday down 8.6% to 16
euros -- nearly 63% below its IPO price of March 17. Chairwoman Nina
Brink now faces a potential shareholder lawsuit following the revelation
that she sold most of her shares ahead of its IPO.
For now, many growth-oriented portfolio managers say they'll happily take
refuge in once-scorned Old Economy shares. Mr. Ritter at Driehaus has
been adding Japanese retail and consumer companies, while Mr. Willyard
at Duncan-Hurst has been rummaging through European pharmaceuticals.
Yesterday's Market Activity
Declines in the tech sector pushed most markets lower, despite some
rotation into Old Economy shares. The Dow Jones World Stock Index fell
2.35 points, or 0.93%, to 249.71. Excluding the U.S., the index fell 2.69,
or 1.43%, to 185.31.
In Tokyo, the Nikkei 225 Index lost 132.16 points, or 0.6%, to end at
20462.77. Softbank shares fell for the fourth consecutive session, closing
at 76,500 yen, down 5,000 yen. Japan Energy rose 22 yen to 117 yen
following a midday report that the oil distributor has developed a zinc
tellurium semiconductor material.
In Hong Kong, the Hang Seng Index ended down 3.4%, or 574.49 points,
at 16318.44, while the Growth Enterprise Market index, which is
concentrated in tech-related stocks, fell 14%. China Telecom slid 9.4% to
HK$60.25, but Cathay Pacific Airways gained 4.8% to HK$12.05 Hong
Kong dollars.
In London, the FTSE 100 Index closed down 47.7 points, or 0.74%, at
6379.40 after technical troubles at the London Stock Exchange pushed
back the start of trading. Some prominent telecom and media shares
rebounded. Colt Telecom closed up 261 pence, or 10.24%, at 36, while,
British Sky Broadcasting rose 13 pence, or 3.79%, to 14.10.
In Frankfurt, the Xetra Dax Index ended 2.6% lower at 7330.77, a drop
of 192.03. Deutsche Bank and Dresdner Bank ended higher on the
surprise news that they called off their merger. Dresdner was up 4.3% at
49.20 euros; Deutsche Bank closed 4.2% higher at 79.10 euros." |
