Asian woes topple stocks Shares in region plunge, affecting Wall Street

Dow off 207

Problems 'hitting home'

Market could get worse before it gets better, analysts say

June 16, 1998|By Bill Atkinson | Bill Atkinson,SUN STAFF

Stocks slid yesterday after Asian markets were routed, sending the Dow Jones industrial average down 207.01 points on fears that problems in the Far East and Southeast Asia will worsen and spill over into the United States.

The 30-stock Dow -- the most closely watched barometer in U.S. markets -- closed at 8,627.93 points, down 2.34 percent for the day. It is down 6.3 percent, or 583.91 points, since a high of 9,211.84 points May 13.

"Many investors are playing in pain," said Alan Ackerman, market strategist in New York at the brokerage Fahnestock & Co. "Damage has been, to many stocks, well in excess of the 6 percent the Dow has given up" lately.

The Dow headed south at the opening bell, after the lead of beaten-up Asian stock markets, which were hours ahead. Singapore's Straits Times industrial index fell 3.54 percent, Malaysia's Kuala Lumpur composite index fell 4.26 percent, the Thai Stock Exchange was off 5.72 percent, and Japan's Nikkei 225 index fell 1.31 percent.

Problems in Asia are "hitting home," said Robert F. Mewshaw, president of Lutherville-based Van Sant and Mewshaw, which manages about $150 million. "We will have an economic slowdown. We are not an island. If they are suffering, we are going to get sucked in."

The complexion of the market has changed dramatically in just a few months.

Failing markets in Asia triggered a drop of more than 550 points in the Dow in October, but by February, investors were buoyant over prospects that Asian economies were mending. As a result, stocks soared, reaching highs in April and May.

But the market cooled off as Japan's problems became more evident. Last week, Japanese officials said the country's economy shrank for the second straight quarter, plunging it into recession. Experts are worried that Japan, the second largest economy in the world, will continue to deteriorate if drastic steps aren't taken to solve its problems.

Stocks big and small have been battered because of the so-called "Asian flu."

The Standard & Poor's 500 stock index, a broad measure of the market, declined 1.99 percent yesterday, or 21.83 points, to 1,077.01. It is down 4.7 percent since its April 22 high of 1,130.54.

The Nasdaq composite, made up of many medium-size and small technology and health care companies, fell 1.68 percent, or 29.30 points, to 1,715.75. It is down 10.5 percent since its April 22 high of 1,917.61.

And the Russell 2000 index of small stocks fell 1.75 percent, or 7.73 points, to 433.86. The index is down 11.71 percent since its high of 491.41 April 21.

"Right now, I think you want to play defense and stay away from Asia," said Robert Brown, market strategist at Ferris, Baker Watts Inc. in Baltimore. "You don't know what the bottom is here."

In a worst-case scenario, the Dow could fall another 600 to 1,000 points before Asia's problems are over, Brown said.

"That would be where we could go if it got out of hand," he said. "That would be on an extreme basis."

He likes oil stocks like Exxon Corp. and Chevron Corp., which are safe bets in uncertain times and pay big dividends. He also likes bonds, utilities and airlines.

"They are packing them in on the airplanes," he said. "If you want to buy good fundamentals, you would buy the airlines."

Donald Hays, chief investment strategist at Richmond, Va.-based Wheat First Union, agrees that the market could be bumpy in the months to come.

He told brokers and executives at the firm's morning meeting yesterday that stocks will be under "intense pressure" for the next four months.

"Then after about four more months of mopping up, the U.S. stock market, especially the small cap/high-growth portion, will be ready for the most exciting growth-stock bull market in history," he said.

Others see the market recovering much more quickly.

David Straus, senior portfolio manager with Washington-based J. L. Capital Management Inc., a subsidiary of Johnston, Lemon & Co., said the stock market is already near bottom, and that low interest rates and the strong economy should spur a rally this summer.

"I'm not terribly pessimistic," he said. "As long as interest rates stay low, that is going to hold the market up from much further decline."

Mewshaw said he welcomes the drop in stocks because he says they are too highly priced and investors have come to expect 25 percent and 30 percent returns each year.

"People who have confused this bull market with their own investment genius are poised to learn an expensive lesson," Mewshaw said.

"It doesn't strike home until they get their statement that you can lose money in stocks, you can lose money in mutual funds."

Pub Date: 6/16/98

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