Investors Use Sales-Growth Statement
From Cisco to Dump Technology Stocks
By CRAIG KARMIN
Staff Reporter of THE WALL STREET JOURNAL
The Wall Street Journal -- Dec. 16
European technology and telecommunications shares suffered through one of their biggest one-day routs in months, as investors used a statement from Cisco Systems as a catalyst for dumping these stocks.
Cyclical shares, left for dead during much of the Internet-related run-up in the past several weeks, were the immediate beneficiary of the tech sell-off. But this so-called rotation strategy has in the past proved short-lived, and investors said the first few weeks of January could determine if the technology pullback is a brief pause or the start of a correction.
"It looks like a fairly clear rotation," said James Clunie, portfolio manager for Murray Johnstone International in Glasgow, Scotland, who recently took some profits himself on Germany's Mannesmann, France's Equant and Telecom Italia Mobile. "It certainly could continue for a couple of weeks."
Most European benchmark indexes closed lower following the technology declines. But the rise of industrial and cyclical stocks more than compensated for the tech sell-off in Germany, lifting the Xetra Dax Index 0.7%. In Asia, investors continued to wind down positions before year-end, and most markets in the region ended in negative territory. Overall, the Dow Jones World Stock Index rose 0.15 point, or 0.06%, to 238.28. Excluding the U.S., the index fell 0.97 point, or 0.54%, to 179.59.
In Europe, investors seized on a statement that sales growth may slow from networking giant Cisco, the second-highest-valued technology stock in the U.S., to unload shares in some of the continent's best performing stocks in recent weeks.
The Dow Jones Stoxx Telecom Index slid 2.8%, while the Dow Jones Technology index declined 4.4%.
Some investor favorites fared even worse. In Paris, Cap Gemini plunged 10% to 210 euros, and telecommunications equipment-supplier Alcatel nose-dived 8.3% to 199 euros. Nokia, the telecom-equipment maker that last week surpassed BP Amoco as the highest-valued stock in Europe, fell 6.7% to 152 euros. The recent declines pushed the Finnish company back to No. 2. Shares of its Swedish rival Ericsson fell 5% to 497 kronor.
Meanwhile, the Dow Jones Stoxx Basic Resources index surged 3.9%, while the Stoxx Chemicals Index gained 2.9%. European auto stocks, led by DaimlerChrysler's 4.4% gain to 70.95 euros, were also up sharply. These cyclical stocks are supposed to gain during periods of economic expansion.
Investors widely agreed that after such buoyant gains in the tech and telecom sectors a pullback was to be expected, even welcomed. But some noted that a rotation to cyclicals has emerged from time to time this year, most notably at the start of the second quarter, only for investors to rush back into the arms of popular tech shares after a rally in Nasdaq or a revival in telecom merger talk.
"It's conceivable this could be the start of a real rotation," said Steven Schoenfeld, head of international stock strategy at Barclays Global Investors in San Francisco. "I don't think Nasdaq will have another quarter like this one. But if it does, it will pull other shares up with it."
Indeed, the Nasdaq Composite Index opened down sharply but shrugged off the sales statement from Cisco. Later in the day, Cisco said the statement was one that the company has made before in SEC filings and added that its earnings guidance for the second quarter of the 2000 fiscal year hasn't changed. The index closed up 1.4% to 3621.95 and is ahead already more than 30% this quarter.
Since technology and telecom shares across the globe are increasingly more closely correlated with each other than with their own domestic markets, the performance of Nasdaq remains perhaps the key near-term indicator. Yet with many fund managers winding down positions and tinkering with the balance of portfolios as the year's end approaches, whether the shift to cyclicals is real or passing won't be clear until early 2000.
George Murnaghan, head of the Baltimore office of Rowe Price-Fleming International funds, suggested that rather than a complete rotation the market could see a divergence in performance between the more established telecom names and the start-up Internet companies without visible earnings. "I think it's the Internet frenzy stocks that will be most vulnerable," he said.
Wednesday Market Activity:
In Tokyo, the Nikkei 225 Index ended 27.19 points, or 0.2%, lower at 18138.36, even with a minor surge in foreign investor money. Casio Computer closed 18 yen lower at 831 yen despite a newspaper report that Casio and Siemens of Germany will link up in the field of mobile telephones. Toshiba closed eight yen higher at 780 yen. The company said it plans to separate its industrial-equipment business from the parent company and transfer it to two new subsidiaries. Bank of Tokyo-Mitsubishi rose 12 yen to 1,456 yen. The Japanese bank and Kokusai Securities said they have formally signed the business-alliance contract announced in October.
In Hong Kong, the Hang Seng Index fell 457.39 points, or 2.8%, at 15825.31 with fund managers preparing to close their books on the year. Some high-flying Internet start-ups were brought back to earth. Pacific Century Cyberworks slipped 4.8% to eight Hong Kong dollars. HSBC Holdings fell 1.4% to HK$104.50 after reaching a record HK$108 on Monday. The Hang Seng's other Big 3 stocks stumbled. Hutchison Whampoa fell 4.2% at HK$103, while Cable & Wireless HKT sank 3.8% to HK$21.80. China Telecom dropped 3% to HK$38.40.
In London, the FTSE 100 Index ended down 68.3 points, or 1.02%, at 6633.8 points. As on the continent, tech shares fell hard. Logica was the biggest index decliner of the day, down 142.5 pence, or 9.2%, to 14.06, while Misys fell 33.5 pence, or 3.9%, to 820 pence. Telecom companies followed suit. Telewest was down 28.75 pence, or 8.4%, to 313.25 pence, and Colt Telecoms was down 200 pence, or 6.8%, to 27.58. Cyclicals took up the slack. Chemicals company ICI added 64.5 pence, or 11%, to 671 pence, while British Energy rose 20 pence, or 5.8%, to 365 pence.
In Frankfurt, the Xetra DAX Index was up 0.7%, or 44.76 points, at 6232.75. German magazine Stern Wednesday quoted Volkswagen Chairman Ferdinand Piech saying his company is open to various forms of cooperation and even mergers. BMW rose 2.2% to 27.50 euros as the market speculated that the auto maker could be a possible takeover target for VW. Volkswagen jumped 5.3% at 50.66 euros.
In Mexico City, stocks escaped the tech sell-off and the IPC Index rose 117.93 points, or 1.8%, to 6772.15 points. Broadcaster TV Azteca CPO jumped 8.8% to 5.22 pesos after the company confirmed market expectations by announcing it had purchased a 50% stake in Spanish language Internet portal Todito.com. Grupo Dataflux, which owns the remaining 50% of Todito, saw its B shares rise 9% to 3.65 pesos.
Write to Craig Karmin at craig.karmin@wsj.com
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