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Technology Stocks : Semi-Equips - Buy when BLOOD is running in the streets! -- Ignore unavailable to you. Want to Upgrade?

To: Czechsinthemail who wrote (6488)	8/5/1998 4:56:00 PM
From: goldsnow	Respond to of 10921

Asian crisis cooling the equity rush Analysis, By Michael Mullane Is Wall Street's great bull run coming to an end? It seems a big call after the share mania which has engulfed the US. Investors just can't get enough scrip and they are buying it through a multitude of funds products on offer to retail investors. Net foreign purchases of US equities are at record levels of almost $US13 billion, and stocks as a percentage of household financial assets are also at historic highs. Meanwhile, US net purchases of foreign stocks and bonds have shrunk almost 90 per cent in the past 12 months to about $US4.7 billion as investors pile into US stock-oriented mutual funds. And cash holdings of US fund managers are ridiculously low, at 4 per cent. So why has the world's most watched share index, the Dow Jones Industrial Average, shed almost 9 per cent in the past 12 trading days, with some tipping further falls of up to 25 per cent waiting to happen? The answer is simple: Asia. The US market's fall has taken place against a backdrop of sharply deteriorating Asian economic growth which is impacting on corporate earnings. And earnings are now concentrating analysts' minds. It's not so much a fear of inflation as a fear of disinflation - and that, rather than interest rate fears, puts the risk on earnings. US shares have been trading at ridiculous earnings multiples. US analysts are only now starting to come to grips with the unrealistic earnings expectations of US corporates for calendar 1998. The fantastic multiples applied to 1999 profits haven't even started to be wound back. When all that finally hits home, investors will start switching out of stocks and into other investments, and the US market will correct big-time. Some say that isn't far away. Mr Ralph Acampora - Prudential Securities' director of technical research and previously a long-term bull - has predicted a 15 to 20 per cent pullback in the Dow from its July 17 record of 9,337.97, which would push the blue chip index down to between 7,470 and 7,940. At its current level, the Dow is up 288.86, or 3.5 per cent, from its close of 8,198.45 on August 4, 1997. The Dow is now 9.1 per cent off its record, just shy of the 10 per cent usually regarded as a "correction" on Wall Street. Ord Minnett technical analyst, Mr Campbell Gorrie, said the current trading multiple of industrial stocks in the US is 28 times earnings. "I see the US multiple falling to around 16 or 17 over a 12-month period and that equates to around a 35-40 per cent fall in stock prices, putting the Dow near late 1996 levels of around the 6,000 level," said Mr Gorrie. CS First Boston strategist, Mr Peter McManus, said that it was likely that there would be a continuation of the current correction taking place in the US. "But our market looks pretty close to fair value," said McManus. "Any further correction simply on the back of the US will actually create further value for investors." JB Were strategist, Mr Craig Drummond, said there was "reasonable downgrade potential" in the US through the latter part of August and into September. "Interest rates are close to cash rates and are not going to help the market. We'd be surprised if the US market went up. At the same time we'd be very suprised if there was a major correction," he said. "However, it's not impossible to see the US market coming back another 5-10 per cent." Mr Drummond said that a key for Australian financial markets would be how Asian markets held together. "The reality is that we've been more correlated to Asia, and I suspect we'll track the key Asian markets more closely than we do the Dow Jones," he said. "There's no doubt that we'd go down if the US market takes a big fall, but we'd go down less severely because I think the adjustment between expectations and reality on corporate earnings is less significant in Australia than the US." That means that Australia would probably incur about two-thirds of the losses experienced by Wall Street. While the most bearish see the all ordinaries hitting a low of around 2,100 points, most expect investors to wade into the market around the 2,500 level. "If the market dipped below 2,500 I'd be very suprised," said one analyst. afr.com.au