Fears of new hi-tech crash feared

Dive in US mutual funds could spark world slump  Investors exit after a disastrous July

Paul Farrelly, city editor Sunday August 6, 2000

Fears are growing in top financial circles of a further slump in hi-tech shares, which may prompt a global stock market crash. Concern focuses on the huge US mutual funds sector, where investors appear finally to have lost patience with 'growth funds' after a disastrous performance in July.

A large-scale exit would, in turn, prompt a massive sell-off of telecoms, media and technology (TMT) stocks, with huge reverberations for world markets.

One large fund at the centre of the worries is the Denver-based Janus Capital Corp, which manages #200 billion in assets. Its two main international funds, Janus Worldwide and Janus Overseas, were worth #33bn earlier this year. Among their biggest investments are #2.1bn of shares in Finnish mobile phone maker Nokia, #1.4bn in Vodafone AirTouch, #360m in Colt Telecom and #540m in Spain's Telefonica.

'There is a growing concern that redemptions will see mutual funds cut their holdings,' said one UK equity strategist. 'They run lots of tech and tech's got whacked.'

Another senior City broker added: 'For Janus read an awful lot of other funds out there. Lot of New York funds have nothing but growth stocks, and the man in the street is finally taking fright.'

The fall-out from the hi-tech retreat claimed another scalp in the UK last week, as computer group ICL scrapped its flotation. Two of the high est-profile internet firms, Boo.com and ClickMango, have already shut up shop, while online music retailer Jungle.com has also postponed its flotation.

Despite market turbulence and prices at a record high, individual US investors have remained bullish, investing a record #130bn in the mutuals, the US equivalent of unit trusts, in the first six months of this year. But in the past week the mood has changed.

Average US equity funds fell 15 per cent in value in the third quarter, the biggest quarterly fall since 1990. This weekend, however, Janus tried to quash rumours of big sell-offs, including Nokia shares, by insisting its funds had not suffered any 'material redemptions' in July.

But brokers fear turbulence stretching into the autumn - traditional crash territory - especially if US interest rates rise. 'Some highly rated hi-tech companies will finally get back to fair value,' said Terry Smith, head of City firm Collins Stewart. 'It's a hell of a long way down from here.'

Markets braced for bellwether Cisco's results

World markets are bracing themselves for the announcement on Tuesday of internet network equipment maker Cisco Systems' fourth-quarter results. Cisco, the second-biggest company on the planet after Microsoft, is seen as a bell wether for new economy stocks.

Mike Ching, Merrill Lynch's influential US internet analyst, said: 'If they disappoint, it's panic time.'

The consensus is that revenues should grow by 11 per cent to $5.25 billion. Earn ings per share are expected to be 15 cents.

Analysts want to see if Cisco anticipates a US slowdown: 'If these guys are cautious it could get messy.'

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-- Martin Thompson (mthom1927@aol.com), August 05, 2000

Answers

I've been looking for a big stock market sell-off since October, 1998. (Why Oct.? History records this month of the year as the most likely time--witness Oct., 1929 and Oct., 1987.) Looks like I was 2 years early. This Oct. should be "it." If so, right before the election, it will sink Al Gore.

-- JackW (jpayne@webtv.net), August 06, 2000.

In October, 1962 there was quite a slide, too.

-- Billiver (billiver@aol.com), August 06, 2000.

The mutual funds are way over-committed. Early this year they were fully invested, had practically no cash for redemptions. If a stock market crash hit, it could do so quickly, because the mutual funds would have to dump stocks en masse, in one big hurry, in order to make redemptions.

-- Wayward (wayward@webtv.com), August 06, 2000.

My uncle, an investment banker on Wall Street, says it it now time to run for the tall grass.

-- QMan (qman@c-zone.net), August 06, 2000.

I sold some long-held mutual funds in July (including IRS's) and moved the money to money markets. I just didn't like what I saw. The Asian markets are starting to have major problems again as well. I just have a bad feeling about this.

-- K (infosurf@yahoo.com), August 06, 2000.

The comments on Asia in a nearby thread caught my attention, and in a way as it relates to this. It looks to me like the world economy, at this point in time, is only skin deep, and we are in for a rip-roaring recession. I wonder how the blame game will fall out. Will it be Clinton's fault, or turn out to be Bush's fault, among the electorate?

-- Wellesley (wellesley@freport.com), August 06, 2000.

Ah, yes, the masses are like sheep, notoriously ignorant of the what and why behind what happens. They only judge based on what is right in front of their faces at the time. As I see it, the only way Bush can be absolved of blame is if there is a massive stock market blow-out before the election.

-- Loner (loner@bigfoot.com), August 06, 2000.