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Technology Stocks : Novell (NOVL) dirt cheap, good buy?
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To: vinod Khurana who wrote (18091)10/23/1997 1:58:00 PM
From: Paul Fiondella  Read Replies (1) of 42771
 
Today's Hang Sen Crash --- my take on it

Phase I. The currency in Hong Kong is under attack. They have responded by raising interest rates TO DEFEND the currency. The alternative would be to float. Underlying all of this is the spread of economic collapse across SE Asia. Waiting in the wings are pressures on Taiwan and South Korea, and most upsettingly JAPAN if Hong Kong floats.

The worst case scenario is as follows.

Phase II. Hong Kong equivocates and prolongs the currency crisis and then floats. Investors in Asia flee the stock market to US Bonds but then have to liquidate those holdings to meet their dollar denominated debts to foreign banks since their income is denominated in local currency. There is a local collapse in the banking, real estate, and possibly spreading to CHina's manufacturing sectors. Everyone in Asia sells US securities to get dollars.

Phase III. The Japanese banks begin to show enormous loan losses. There is pressure on the yen. Central Banks in Japan liquidate their US Treasury Bond holdings in order to obtain cash to defend the currency. The pullout of Asian investments in US debt instruments and equities gets larger and causes demand for Treasuries to fall which cause interest rates on non governmental debt to rise. That causes a collapse in the stock market. The Fed is caught in a delimna but is forced to raise rates. Retired investors and overleveraged debt ridden high flyers liquodate their mutual fund holdings and that spreads to those less burdened by debt that want to hold onto their money.

That's the worst case scenario I can think of. It certainly is more worrisome now that Hong Kong's currency is under attack. The exposure of the Japanese banks is the question.
For the present there is some worry about Japanese and British banks with loans in Hong Kong and China, and for technology companies with earnings at all dependant upon the Asian market.
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