Wall Street overreacting to Asian crisis - analysts
(Updates to close)
By Pierre Belec
NEW YORK, Jan 9 (Reuters) - The Asian economic crisis has struck Wall Street like a typhoon, threatening one of the longest running bull markets in history.
But some experts say investors are overreacting to the impact of Asia's problems on the U.S. economy and corporate profits, and they predict stocks will race higher once logic replaces fear.
It was another frantic week for stocks, as investors hammered companies that warned that earnings for the latest quarter will be disappointing, particularly those that linked their less-rosy results to Asia.
Asian economies have fallen like dominoes amid collapsing currencies and crumbling real estate speculation.
Wall Streeters sold stocks with a wide sweep, dumping entire sectors such as technology, with little concern as to whether the companies had real exposures to the Asian flu.
By Friday's close, the Dow Jones industrial average was bloodied, holding a record weekly loss of 384.62.
Investors sold stocks because of fears that the globalization of economies has created a new trading environment for U.S. multinational companies, which makes them susceptible to weak economic regions of the world.
Most were betting that the fourth-quarter corporate reporting season, which officially starts around mid-January, will bring a slew of poor earnings.
But some analysts say the fallout from the Asian economic crisis is being blown out of proportion here, and they reckoned that logic will soon start to replace fear, leading investors to fall in love again with stocks, even those of some emerging markets.
''Investors are in an orgy of pessimism about corporate earnings because of Asia,'' said Peter Canelo, U.S. equity strategist at Morgan Stanley Dean Witter.
''After Wall Street gets over its emotional reaction and the earnings reports are out, we may find some positive surprises, especially for companies that have no Asian exposures,'' he said.
Asia, Canelo said, will have no far-reaching ramifications on the United States, the world's largest and strongest economy. ''In economic terms, Southeast Asia is nothing, with only 10 percent of U.S. exports going to the affected areas,'' he said.
''Under the worst-case scenario, even if the United States loses 2.5 percent of those exports and with total U.S. exports accounting for 11 percent of the American economy, it would merely amount to one-quarter of 1 percent -- it's a rounding error,'' he said.
Most observers say the Asian slump will trim about half a percentage point off the U.S. economy in 1998, lowering growth to 2.5 percent or 3 percent, which is still a healthy pace.
The U.S. economy remains in terrific shape with wholesale prices falling by 1.2 percent in 1997, the biggest drop since 1986. Also, the jobless rate is the lowest in a quarter century.
Analysts expect the growth of earnings for companies in the Standard & Poor's 500 index to rise this year by 5.5 percent, or about half of 1997's growth rate and down one-third from 1996.
''The big surprise in 1998 is that we are going to put Asia's problems behind us a lot sooner than most people think, certainly in the first half,'' said Hugh Johnson, chief investment officer for First Albany Corp. in Albany, N.Y.
''The first hint will be when stocks in Asia start to rise at a time when their economies are contracting,'' he said. ''This will be the sign that global stock markets are about to shake off the impact of the region's problems.
Johnson said the stock market is currently going through tough times because investors are afraid to get ''blindsided'' by bad earnings reports.
He said portfolio managers, who invest billions of dollars for their mutual fund customers, have become gunshy when it comes to any company with Asian exposure.
''Investors don't only have to worry about the stocks that they own, but entire sectors, as well,'' Johnson said. ''Each time there's a bad earnings report, it tends to prepare the portfolio managers for the next disappointment.''
On Friday, the Nasdaq Composite Index closed at 1,503.22, down 52.32 points. For the week, it was off 78.31 points.
The Standard & Poor's composite index of 500 stocks was off 28.36 points at 927.69. For the week, it was off 47.35 points.
The NYSE Composite index of all listed common stocks was off 14.17 points at 487.47. It was down 24.68 points for the week. |
