International Investment Strategies
With so much volatility in the market at present, Chris Vellacott
says you pays your money and takes your choiceAutumn is definitely
in the air and stock markets around the world have entered their
habitual annual selling frenzy. History’s most painful equity
market crashes, such as those of 1929 and 1987, all took place around
this time of year.
In 1997, the Asian crisis, which started with a currency devaluation
in Thailand the previous summer, was gathering momentum and markets
elsewhere started to feel the hurt.
The following year, the problem was no longer confined to a single
region and Russia had defaulted on its debt repayments. Once again,
markets went into freefall.
Although October 1999 passed without incident, this year has seen
a return to the old pattern. An oil crisis exacerbated by trouble
in the Middle East has eerie echoes of the cruel recession endured
by many in the 1970s and, as a result, the markets are nervous.
International Investment Strategies & Selling Pressure
But there is another factor which has contributed to recent selling
pressure, which has little to do with oil prices or inflation.
The world still cannot seem to make up its mind about the technology
sector. Early in the year, people just could not buy technology
shares fast enough and venture capitalists were eager to throw millions
at every clever-sounding internet start up. When companies such
as lastminute.com in the UK floated, shares were massively oversubscribed
and its founders became overnight millionaires.
The other TMTs, namely media and telecommunications, were also
caught up in the boom on the grounds that they were poised to benefit
from the much heralded
internet revolution.
Internatinal Investment Strategies & TMT
In March of this year the bubble burst and there was a massive TMT
sell off around the world. The technology-based Nasdaq index, by mid-April,
had fallen as much as 27 per cent from the year’s highs the
previous month. The slump was followed by a partial recovery, but
volatility has characterised the sector ever since. In late
summer, there was much talk about the US economy heading for its
much heralded soft landing. The US Federal Reserve seemed to have
done a good job of choosing monetary policy and people were confident
we would not see a repeat of the recession of the early 1990s.
Investors again became more inclined towards higher risk within
their portfolios and many were persuaded to have a second flutter
with TMT stocks. The Nasdaq started a shaky climb in August, but
early September again saw the start of a wholesale sell off by investors
disillusioned with the sector. In mid-October, Japan’s technology
sensitive Nikkei index fell below the psychologically important
15,000 level for the first time in 19 months.
International Investment Strategies & IBM
This second technology rout was partly due to profit warnings from
the likes of IBM and Intel, the microprocessor manufacturer. Both
corporations blamed poor performances on a persistently weak euro,
which is damaging sales on this side of the Atlantic. Market
pundits have begun to speculate whether this really is the long-awaited
technology shakeout. The optimists hope that markets will bottom
out soon and investors will be free to start playing a high-quality
technology sector finally cleared of trash.
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