Billion dollar share losses feared today

By CAROLYN BATT and IAN McILWRAITH Monday 17 April 2000 By WILCOX Australia's shareholders are bracing for losses of more than $25 billion this morning when the stock market re-opens after Friday night's plunge on Wall Street.

Analysts warned the Australian market could sink by up to 200 points in early trading, but they expect a slight recovery later.

"The US market fell around 6 to 7 per cent, and I think that at some stage in the day we could be down a similar amount," said Mr Rodney Green, chief executive of Perpetual Investments, which manages more than $8 billion of funds.

He expected the market to later claw back some ground to finish around 4 per cent lower than last week's close.

With over half the adult population holding shares directly or through a managed fund, both retail and institutional investors are expected to engage in heavy selling amid fears that worse is to come.

Technology stocks are expected to bear the brunt, although one of the biggest stocks in the local market, Rupert Murdoch's News Corp, has already been savaged in US trading and is likely to lead the way down today.

If the market heavyweight falls by the same percentage locally as it did in the US (around 8.7 per cent) - amid the news that Mr Murdoch has been diagnosed with prostate cancer - the stock price would shed almost $1.80 to $18.80, or more than $7 billion in market value.

In the last big shares shakeout of October 1987, the decline began on the Friday, but it was not until Tuesday, October 20, in Australia that the All Ordinaries index fell 25per cent as the full effects of "Black Monday" on Wall Street hit home.

"It'll get the cane tomorrow, there's no doubt about that. No market is going to just stand aside," said Mr Eric Gale, a director of stockbrokers Ord Minnett.

Already, the horror week in the US has left shareholders $3.5 trillion poorer, with the most dramatic dive taking place while most Australians slept on Friday.

Latest inflation figures, prompting fears of sizeable interest rate hikes, fuelled a selling frenzy in technology and blue chip stocks.

The sell-off in the US was exacerbated as falling shares triggered margin calls, forcing investors to offload more shares in order to meet their loan obligations.

The technology-heavy Nasdaq Composite Index dived a dizzying 9.67 per cent, losing 355.49 points to 3321.29. Not far behind was the blue-chip Dow Jones industrial average, which sank 617.78 points or 5.66 per cent to 10305.77.

The magnitude of the falls has given Australian investors plenty to ponder as they await the opening of the market today.

The forecast fall is smaller than that suffered on Wall Street, in part because our market is not seen to be as over-valued as New York and because the level of margin lending is not thought to be as high here.

In addition, local buying interest is expected as cashed-up fund managers sift through the wreckage for bargains.

"Without doubt, there'll be buyers coming in on Monday," said Mr Stuart Anderson, a director of Johnson Taylor. "I've already had clients ringing me, asking me about opportunities."

Mr Scott Logan, a private client adviser at Merrill Lynch, said he would definitely be doing some buying today. Many institutional investors hold up to 11per cent of their assets in cash and therefore have the funds to splurge on cheap stocks this week.

With the steep plunge by the Dow Jones setting the mood, it is unlikely the so-called "old economy" stocks will escape either.

While most sectors are expected to suffer short-term, analysts are drawing distinctions between "quality" stocks, which will recover, and others which will not.

"I don't expect the blue chip sector to have a permanent fall," said Mr Anderson. Another analyst said quality tech stocks would probably be sold off to a level which made them an attractive buy, and would recover in the longer term.

http://www.theage.com.au/news

-- Martin Thompson (mthom1927@aol.com), April 16, 2000