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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Geoff Nunn who wrote (1005)	1/17/1998 9:23:00 AM
From: Mohan Marette	Read Replies (3) \| Respond to of 9980

Abbey Josheh Cohen on Asia and the Marekt. Geoff and thread: In case you haven't seen this inverview yesterday. CNBC interview with Bill Griffeth:(Jan.16,1998) CNBC: The Asian situation - is that the straw that's stirring Wall Street's drink right now, and if so, are we nearer the end of that crisis, in your view, and it's effect on Wall Street, or nearer the beginning? AJC: It seems to me that the stock market in the United States has been focusing keen attention on Asia since last August, and, since that period of time, we have been stuck in a very choppy trading range. Our own sense is that the impact of Asian developments on the United States will prove to be far more muted than the many of the pessimists have estimated to this point and we do think that US stock prices can move higher, once there's clarification. CNBC: Certainly the numbers from an Intel or Motorola this week would suggest that it wasn't that big a factor for the 4th quarter but there are plenty of people who argue that it wouldn't have been a factor in the 4th quarter - maybe it won't be for another quarter or two - then we start to see to see the slowdown effects of the Asian crisis. Do you disagree? AJC: Even if Asia does have a larger impact early in 1998 than it did at the end of 1997, the fact remains that our domestic economy is doing extremely well - and the United States is primarily a domestic economy. CNBC: But, you would then argue - look we're in an international economy today, Aren't we? A global economy that benefits from the liberalized trade agreements that have been passed in the last few years and we benefit from the upside. Don't we have to suffer from the downside as well? AJC: I think there is some truth to that, but we have to keep in mind the relative proportions. Foreign trade for the United States is equal to just about thirteen - one three - thirteen percent of our GDP and that is a much smaller proportion than it is in many other nations. Now US companies do do foreign direct investment in other countries but it's not all in Asia. We do a great deal of business in North America - both Canada and Mexico. Both of those economies are looking quite good. We also do a great deal of business in Europe and there seems to be some improvement on the margin there as well. CNBC: The last question on Asia - and then we'll get our own markets here primarily. The news out of Asia has been hopeful this week with the signing of the more stringent agreement with the IMF and Indonesia. We had Roger Altman earlier today, a former deputy Treasury secretary, who's had first hand knowledge of how these kinds of bailouts work and he says , "Look, things are still very fragile and any of these agreements could unravel." If that's the case, do we see a bigger play on Wall Street then - even if it's only psychological? AJC: It seems to me that what matters at the end of the day for the US stock market is what's happening in those economies and what's happening in the economies of other trade partners. It may very well be that we'll be in a period of slower growth in the global economy but we certainly do not see a global recession on the horizon. CNBC: OK. Back here now. Earnings? You expect them to meet expectations? I mean, some expectations have been coming down here for the last few months. Do you expect that to continue? AJC: We have always seen a pattern, Bill, where at the end of the year expectations do come down, because expectations almost every year start a little bit too high. We have not seen that 4th quarter expectations are being cut any more dramatically than in any previous quarter. What we're watching most intently is what the companies tell us about the first half of 1998. To this point, not enough companies have reported yet and so the information is really fragmentary. But, what we do know is that most of those companies what have reported have said that their results were quite good in the 4th quarter? CNBC: And you would expect that to continue? AJC: We do think that 1998 will be a good year although profit growth on average will be slightly slower than it was in 1997. Asia is part of that. CNBC: And what about growth for the stock market itself? Certainly we've had two or three stellar years - 20% gains - unprecedented for the Dow Jones Industrial average. What do you expect for 1998? AJC: I think 1998 will be yet another good year - but perhaps not quite as stellar. In 1997, stock prices were propelled upward, especially in the first half of the year, not just by improvements in profits but also because PE ratios went up. PE's go up when inflation and interest rate expectations go down. We may have a little more of that and a little more multiple expansion, but I think that we have seen most of the increase in the PE in 1997. CNBC: Sectors that you feel will leave the way this year? AJC: I think there are three laggards thus far that will be leaders. Financial services stocks have been very hard hit because of overreaction to the impact of Asia on them. Second category - Technology - there are some companies that will have some problems, but the overall sector we think will do very well. And the third area that we have been expecting to better for a while and it has not, is small and mid-cap stocks. They look very cheap - but they can stay cheap until investors feel confident enough to add a little more beta, a little more pizzazz to the portfolio. CNBC: What is it about market psychology that's keeping the focus on the blue chips and away from those smaller companies that you've been talking about? AJC: I think it's uncertainty. Asia, for many people, was a bolt out of the blue. And because many people had not done the analysis ahead of time, they're still a little bit confused about what the ultimate impact may be. Lets also keep in mind that it IS a moving target. There's still many more developments up ahead and while there's uncertainty, there's always a tendency to focus to on those securities that perhaps are the largest cap and most liquid, that is, the most easily traded - you can buy them quickly and sell them quickly. And they also tend to be the companies that are very well followed by Wall Street analysts and so there's a better sense of how the earnings are going. CNBC: Last question - what about interest rates? Certainly we've been at historic lows for the 30 year treasury bond in terms of yield. We've had not a yield curve but a yield line. Basically, the spread between the short end and the long end not very wide. Good or bad for the stock market if this continues? AJC: It seems to us that inflation and interest rates will be comfortable for the stock market over the next few months. It may very well be that reported inflation goes down a bit more and it could also happen that intermediate and long bond yields go down a bit more as well. We're not disturbed about the flatness of the yield curve. Let's keep in mind that the previous fifteen years, we had an usually steep yield curve. This is in fact closer to the more normal historical pattern. CNBC: I lied. Last question now. Upward target for the Dow this year? AJC: We think an easily reachable target for the Dow is 8700 and for the S&P 1175. Bill, you know that what I like to do, is set targets that I feel comfortable that we can reach, and then go through.