"Asian money heads West" Business Week (Int'l edition)
I thought I would share this Business Week article with you guys in regards to the question Mr. Nice Guy raised. Should there be an announcement made from a major auto company, such as BMW, that they will use OE's technology in car X, Y, or Z. OE's stock will at least double on the day of the announcement. OE will stop trading on the stock first to allow the news to be issued and also allow Maverick to gather his thoughts on what to do next. But for me, I will sell my Novell stock, sorry guys, and load up on OE even if it doubles. The article below indicates to me that smart investors from Asia may decide and recognize the value and direct funds into OE's stock. This is my opinion, and only my opinion, but the validation of OE's technology by a major player in the auto industry will be the ignition to OE's stock explosive growth. The "good will" value (this is what everyone is overlooking) that will be created by such an endorsement will be huge and reflected in OE's stock value. Too optimistic? We'll see.
Business Week: June 1, 1998
International -- Asian Cover Story
WORLD MARKETS: FLIGHT TO SAFETY (int'l edition)
Asian money heads West
The giant sucking sound from Asia these days is the money leaving. Some $50 billion has sluiced out of Indonesia during its economic and political meltdown. Japanese investors bought a record $21 billion in foreign bonds and equities in the first 10 days of April. And South Korean companies now routinely keep export receipts in dollars, rather than changing them into won and seeing their value erode. ''We want to be on the safe side,'' says the finance director at a Korean chaebol.
A lot of Asia's capital is heading to Wall Street and Europe, where it's helping pump stock markets to record highs. Analysts say Asian cash now comprises a big chunk of the $4 billion pouring into U.S. large-cap and index mutual funds each week. Since mid-March, inflows into European equities through U.S.-based mutual funds have nearly tripled, to over $300 million a week, according to AMG Data Services in Arcata, Calif. The torrent also has buoyed the dollar and kept U.S. interest rates lower than they might otherwise have been.
Capital outflows are likely to accelerate (chart). For one thing, Japan's rising trade surpluses give it billions more to invest. With economies ailing across Asia, ''the temptation to put money overseas remains almost irresistible,'' says HSBC Securities Japan economist Peter Morgan.
SHELL-SHOCKED. Capital flight may help Western markets but it could have a devastating impact on Asia itself. Shell-shocked economies across the region are losing the cash they need to recapitalize banks and restart growth. Worse yet, these countries are being caught in a vise. Not only are they being socked by outflows, but they also are no longer receiving the huge investment inflows they got during the pre-crisis Asian Tiger days. Deutsche Bank estimates that $93 billion in private capital flooded into Indonesia, Malaysia, the Philippines, Thailand, and South Korea in 1996 alone. But last year the flow reversed and $12 billion actually flowed out. The $105 billion swing is equivalent to 10% of the group's gross domestic product--and no one sees the trend reversing any time soon.
The risks are even greater for Japan, the region's biggest economy. And, because Japan is a major player in world markets, a massive run on yen could destabilize the global financial system.
The yen sank near 137 to the dollar at one point on May 19, its lowest level in more than six years. Both Finance Minister Hikaru Matsunaga and Vice Minister of Finance for International Affairs Eisuke Sakakibara--the powerful ''Mr. Yen'' of past currency-rescue efforts--hint that Japan will defend its beleaguered currency. Indeed, in April, the Bank of Japan threw $21 billion, nearly a tenth of its $220 billion foreign-exchange reserves, into bolstering the yen. The effort pushed the dollar down to 127 yen on Apr. 10. But the greenback has rebounded since, as Japanese banks and pension funds transfer massive amounts of cash abroad. ''It's some sort of death wish,'' says F. Mark Turner, managing director of Boston's Schooner Asset Management Co. ''Every night, Japanese institutions are the major sellers of their own currency.''
Ordinary Japanese, facing a dead-in-the-water stock market and crummy yields of 1.3% on long-term bonds, are heading for the exit as well. In little more than a year, Japanese investors have piled $5 billion into Alliance Capital Management high-yield bond funds investing in emerging-market and U.S. corporate debt. ''Demand for high-yielding foreign bonds has gone through the roof,'' says Michael Howell, managing director of CrossBorder Capital, a London financial consultant.
With Japanese investors rushing for the door, any further acceleration in the outflow could trigger a devastating plunge in the yen. Pessimists such as Howell say the yen could eventually plummet to 200 to the dollar. In the worst case, Howell thinks, a free-fall dive in the Japanese currency could be triggered by an emergency interest-rate cut by the Bank of Japan to counter a severe recession or to bail out banks.
''BIG BANG.'' Even if the yen doesn't reach 200, most analysts figure that Japanese authorities are aiming at a 135 to 140 range. Some government officials believe that 150 isn't out of the question. With interest rates so low and the government's plans for bank restructuring and financial deregulation a year or more away from producing any benefits, Japan may have no alternative to a cheaper yen and rising exports to stave off economic disaster. This means Japan's aim now is to ''slow down the [yen's] depreciation, rather than stop it in its tracks,'' says Salomon Smith Barney economist Jeffrey D. Young.
In fact, financial deregulation may only hasten the outflow of cash. Since 1995, the Ministry of Finance has made it easier for foreign asset-management companies to compete for a bigger share of Japan's pension market. Then, on Apr. 1, the ''Big Bang'' deregulation allowed foreign firms to market mutual funds locally. The new regulatory environment has created a huge pipeline to pump capital out of Japan. And with $10 trillion in household financial assets stashed away, the Japanese have plenty of cash to spare. Consumers' ownership of foreign bonds and equities already has doubled, to $45 billion, over the last two years, says Merrill Lynch & Co. economist Ron Bevacqua.
PANICKY ACCELERATION. The numbers will soar as more global products become available. Citibank branches in Tokyo have been mobbed lately by investors eager to purchase foreign assets. The international assets under management at Fidelity Investments Japan have soared 40%, to $3 billion, in the last six months, climbing 12% in April alone. Until Big Bang, investors had to notify the Ministry of Finance of such transactions. ''They didn't have access to U.S. products, global products, European products.'' says Donna Morris, Fidelity's Tokyo branch manager.
Of course, Western markets could face problems from the onrush of Asian cash. A panicky acceleration of capital flight that flattens the yen could deal a resounding shock to the world financial system. And Asian investors could easily jolt Western markets by pulling capital back home once their region gets back on its feet. But for now, it's party time as Asian capital fires up Wall Street.
By John Templeman in New York and Brian Bremner in Tokyo
Copyright 1998 The McGraw-Hill Companies, Inc. All rights reserved. Any use is subject to (1) terms and conditions of this service and (2) rules stated under ''Read This First'' in the ''About Business Week'' area.
Transmitted: 05/21/98 19:47 (B3580015) |
