| Investment Views (November 23rd 1998) |
As the saying goes, when the fed eases three times, you can shut your
eyes and
buy stocks. The markets certainly behaved as if this saying is
true last week.
And we see the Dow challenging the last high made in July around 9400
on the
Dow next week. But this level should not be easy to crack though.
We should see
at least a 2.5% correction, if not 5-7%. Ideally we should trade
between 8800-9400
for a while. Important levels to watch on the upside: 9400.
A close above 9400
will take the markets further upwards. On the downside, we would
watch the 9000
and 8800 level.
In Europe, in Asia the stock markets all rallied. Because of the
options expirations,
the upward movements were especially strong towards the end of the week. In
Switzerland we
see the SMI
rising up to at least 7200-7400, before the markets
pull back a bit. Important level of
support is around 6700-6800.
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Last year the total sales is US$46billion. What makes this company
interesting is the analysts' view that
the electricity division is alone worth about its stock price now.
You get the rest of the businesses
for free. We would therefore like to have it in our long term
portfolios.
We're happy to see more and more economists and other experts speaking
out
on the Asian crisis. Instead of the unisono moralizing and one-sided
blaming of
Asians, we're finanlly hearing other voices more often. A recent
interview
given by Professor Jagdish Bhagwati of Columbia University in Forbes
magazine
puts the whole problem into sharp focus.
He was asked the question: "Didn't Asia's sudden collapse
show that Asian
economies rested on a financialhouse of cards?"
His answer was very much the opinion represented by this Newsletter
a few months ago:
"No. The IMF would like us to believe that, in order to lay the blame
on the countries themselves. In fact, it was caused by a herd-like
behavior among
investors who pulled their money out of these countries. It was
a vicious circle:
Suddenly everybody decided that these economies-...- were in bad shape.
The
capital outflow put them into a tailspin."
On capital controls he said"...Most of these countries have moved too
far toward
capital-account convertibility to pull back now. It is like joining
the Mafia. You
can't say to Mr. Gambino 'I'm leaving,' because then you'll leave in
a coffin."
True again! I think it is important that the Asian countries
fully realize this and
start to put in measures to fully reform their banking system to better
guard their
economies from such external shocks. A Chilean-style mechanism
to "tax" short-
term capital inflow would be a good starting point. But stiffer
margin requirements
will also be needed to fend off short-sellers. Of course the
domestic banks must
also meet much tougher reserve requirements on foreign debts they take
on. At
the same time short-selling on the stock markets should also be made
more
difficult. But all these measures will not be particularly effective,
if the international
exchange rates did not stablize. The periodic wild swings in
the currencies and
interest rates destablize the world economies fundamentally.
The costs for doing
business and investments are enormous, if one is to be hedge against
all these volatilities.
The advocates of the perfect free markets do not see that the very
"freeing" of the
exchange rates "free" up the interest rates as well. But the
wildly varying rates
end up wrecking the real economies and free trade is no longer possible.
| *The stock prices are provided for informational puruposes only and not intended for trading purposes. The opinions expressed in these pages are what they are: opinions! |
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