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Non-Tech : The Critical Investing Workshop -- Ignore unavailable to you. Want to Upgrade?

To: Dealer who wrote (27341)	8/1/2000 11:08:08 AM
From: Dealer	Read Replies (1) \| Respond to of 35685

NT,JDSU--Tuesday August 1, 9:48 am Eastern Time worldlyinvestor.com Region of the Day Nortel Plunge Pulls Plug on Canada Rally By Bob Beaty, Canada Columnist A dose of reality shocks the TSE 300 index as superstar Nortel takes a step and misses a rung. Live by the sword, correct by the sword. The TSE 300, the flawed but heavily followed index that reflects the state of health of Canadian stocks, took a pasting last week as 500 points vaporized. The normally Cinderella-like market looked more the ugly stepsister as the too-heavily-weighted flavor-of-the-market Nortel (NYSE:NT - news) took a full clip. The shares are now kissing $70, off about 20% from a recent high of $86. As Nortel represents almost a third of the index by weight, the market - that as late as last week was smugly contemplating its out-performance of the Dow for the year -- was hoisted on its own petard. Prior to the pullback in Nortel, pundits boasted that the TSE 300 -- now at around 10,400 -- was up 20% year-to-date while New York had basically idled with a negligible gain for the same period. Even if Nortel were stripped out, gushing profits for oil stocks and a surge in commodity-sensitive cyclicals would have driven the Canadian market up a respectable 12% for the year so far. Chickens Don't Chortle for Nortel All that changed last Friday, as Nortel excesses were trimmed and the specter of another interest-rate rise emanated from the hallowed halls of the Fed against a US economy that had been thought to be slowing. And whenever the economic momentum seems to be going the wrong way -- in this case, continued strength -- investors react to any glitch in earnings with vicious selling. Press reports state that the impressive 63% average earnings-growth rate seen in Canada during the first quarter may be loathe to hit 40% once all the companies have reported. All this wobbling simply served to bring out the pessimists who turf stocks rather than ride out the uncertainties -- and, in doing so, exacerbate the falling market. Ironic that pundits laud the performance of the TSE over the Dow, as the only factor that is responsible, especially over the last year, is the enhanced international exposure of stocks (and TSE 300 constituents) such as Nortel, JDS Uniphase (Nasdaq:JDSU - news) and PMC Sierra (Nasdaq:PMCS - news), to name a few. The increased trading volume of these inter-listed tech darlings creates arbitrage strategies, currency plays and even increased domestic trading, as foreigners bid these companies up to untold heights. Foreign Influence As one who follows these stocks, I can tell you that a lot of Americans don't know or care that these stocks are Canadian. Should they care? Of course not. They now fall squarely into the international category and trade far more shares in foreign markets -- such as the US -- than they will ever trade domestically. The rub, though, is that while the fortunes of this narrow group will buoy the Canadian market and affect economic instruments such as the Canadian dollar, faith in the performance of the TSE is worship of a craven image. The Canadian market levels -- as with just about everything economic in Canada -- is now a result of US trading activity rather than anything that happens domestically. Chasing the Green If the TSE has become the rump of international trading, at least as far as the heavyweights are concerned, then what is the future of the institution? Likely, if nothing changes, the TSE will continue to delude itself that Canada is a force in capital markets, though representing only 3% of that statistic globally. Oblivion would come quickly if half a dozen stocks, including those noted above, abandoned the TSE and listed instead on the most liquid markets that assure unsurpassed exposure to both international investors and virtually bottomless capital pools. Nationalism has less and less to do with where a company trades its shares. Should investors care? Not anymore. They'll find good stocks no matter where the favored companies are domiciled. Bob Beaty is worldlyinvestor.com's Canada Editor. He worked for 20 years in the brokerage industry, in both Canada and the UK. Now primarily Internet-based, he has written extensively on stocks, bonds and market-related issues for a variety of Web sites. His column suggests investment and trading opportunities in the Canadian market. He doesn't hold positions in any of the companies mentioned. Go to www.worldlyinvestor.com to see all of our latest stories.