Dr. Neville Bennett
August 8, 2000
HIGH –TECH CRASH IMMINENT?
Fears are growing in top financial circles in London of a crash in US high-tech shares which may reverbrate around the globe, creating a financial disaster.
Concern focuses on the US mutual fund sector. The prestigious London Sunday newspaper, The Observer, believes that investors have finally lost patience with “growth funds” after a disastrous performance in July. It predicts a massive exit from these funds and indicates that this would prompt a sell-off of telecoms, media and technology stocks (TMT).
One large fund which is in the spotlight is the Denver based Janus Capital Corp, which manages $200 bn in assets. Its two main international funds, Janus Worldwide and Janus Overseas hold more than $3 bn in Nokia,$2 bn in Vodaphone,and large chunks of Colt Telecom and Spain’s Telefonica.
Janus is not particularly suspect, it is merely a good example of a fund which is based entirely on growth stocks. Obviously there are many more funds with a similar structure. The market has been quite tolerant of funds based on capital growth, but there could be a change of mood, with a renewed interest in earnings. Rightly or wrongly, London perceives many investors “taking fright” and exiting growth funds.
London’s antennae are atuned to change since several market favourites went belly up in the last week. European markets are down as I write (Monday US Time) despite the Dow being buoyant. In London, computer company ICL scrapped its flotation, Boo.com and ClickMango closed, and on-line music retailer Jungle.com postponed flotation.
Recent data reveals that US mutual funds have begun to bleed. They fell 15% in the last quarter,the biggest quarterly fall since 1990.
Janus tried to squash rumours of big sell- offs .It claims its funds had not suffered any “material redemptions” in July. Brokers are skeptical believing that a turbulent spasm will afflict markets over the northern summer, especially if the Fed increases interest rates. Much will depend on Cisco’s fourth quarter result. Cisco’s performance is widely regarded as a benchmark for new economy stocks. Mike King of Merril Lynch has been very forthright” if they disappoint, it’s panic time” |
