News The Toronto Star News Story April 16, 2000 Investors go on Black Monday alert

By Madhavi Acharya Toronto Star Business Reporter Black Monday could start at 10 p.m. tonight.

That's when Asian financial markets start trading, giving jittery investors the world over the chance to dump their once-loved high-tech stocks.

North American investors saw a heart-stopping $1 trillion (U.S.) wiped off their stock markets Friday as major indexes logged their biggest one-day point declines in history last week.

Any attentive analyst would expect another stomach-churning ride on North American markets tomorrow, when the first trading session opens after last week's meltdown, on reports of higher-than-expected U.S. inflation.

Last week's developments leave little doubt about the direction foreign markets are expected to take.

Taiwan was one of the few markets to trade since the savage declines on Wall Street and Bay Street. It took a severe beating yesterday, dropping nearly 5 per cent as nervous investors joined in a frenzied sell-off.

Tonight at 10 p.m., Hong Kong's Hang Seng index, which fell 1.28 per cent Friday, opens and is expected to drop. The FTSE in London starts trading at 5 a.m. tomorrow and is expected to open down 150-200 points.

In Taiwan, technology stocks - the darlings of foreign funds - were hardest hit.

Analysts said Taiwan's fundamentals remain strong, but its hypersensitive market would fall further if Wall Street woes deepened.

``It's not an over-reaction but a natural response,'' Jardine Fleming vice-president George Hou told Reuters.

``Taiwan is not a closed market. What happened in the United States has a direct impact on our market.''

Gordon Higgins, vice-president of Canadian equities at Elliot & Page in Toronto, will be poring over reports on the foreign markets today.

``If we like the names we have in the portfolio, we're not going to make a huge shift because of something we see happening overseas, but it does give a tone for (tomorrow),'' he said.

Watching the technology bubble burst was a rude awakening for legions of investors who tried to line their pockets by riding the ``new economy'' stocks to giddy new heights.

The expected declines will be felt throughout the economy, from high-tech firms to investors who bought stocks on their way up and may be in for a case of statement shock when they get their monthly investment notices.

Technology stocks are expected to head further south tomorrow, particularly as brokers make their dreaded margin calls.

When investors borrow money from brokers to play the market - a process known as buying on margin - they use the purchased stocks as loan collateral.

When the value of those shares decline, investors are required to put up more of their own cash or sell shares to pay back the lender.

The anticipated heavy selling tomorrow may be offset by bottom-fishers hunting for bargains.

But generally, investors who can afford it will stay on the sidelines, waiting for calmer waters.

That includes Elliot & Page.

``We didn't do any extra trading on Friday and don't see any reason why we would on Monday,'' Higgins said.

``We have our portfolio structured the way we want so we're not going to change our investing style based on one day or one week.''

So does last week's carnage mean the talk of ``old'' and ``new'' economies invalid? Not at all, Higgins said.

``I think the whole point that people missed is that a lot of these companies have great technology that are going to keep costs down for other companies in the old economy,'' he said.

``It wasn't that we weren't believers in technology or telecommunications. We weren't believers in the prices that people were paying for them.''

Scores of high-tech firms cancelled or postponed initial public offerings, figuring their stocks will garner little investor interest in this climate.

``Even for the companies that were making real products that were being sold, you're going to find that if they can't keep raising money in the equities markets that there'll be some problems,'' Higgins said.

For investors who stick with their long-term savings objectives, these market dips are a necessary part of the higher returns that come with higher investment risk, said Robert Logi, financial adviser with CIBC.

In fact, if you have the money and at least five years to stay invested, it's not a bad time to buy, said the Oakville-based adviser.

``You're lucky if you can get 6 per cent on bonds and GICs right now,'' Logi said. ``The fact that there was a bubble in technology stocks does not change the fact that equities are the only game in town.''

http://www.thestar.com/thestar/editorial/news/20000416NEW01c_CI-BLACK16.html

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