In bear grip

Reshma Krishnan

THE bear on the prowl attacked the markets, especially Nasdaq in July.

Perhaps, company results, fresh economic data, credit risk and bankruptcies were the bug-bear.

Nasdaq's fortunes fell, as it wiped the gains made last month to show negative returns of 2.8 per cent to close the month of July at 3,766.99. The technology market saw its worst week since April and fell 4.7 per cent to 3,663.00, 173 points in one day, falling a cumulative 10.5 per cent between July 25 and 29. This was mainly because of poor profit reports by companies.

American investors are worried about the profit growth of hi-tech companies. Considering that the astounding share prices of these firms are based more on their potential ability to earn, rather than on present earnings, worries about this potential depresses stock prices and will continue to do so until investors have any reason to believe otherwise.

The fresh economic data released by the US Commerce Department, showing the second quarter gross domestic product rising at an annual rate of 5.25 per cent compared to the estimated 3.5 per cent, raised fears of the Federal Reserve hiking interest rates when it meets again in August. This definitely clouds any positive sentiment in the market.

The Dow Jones Industrial average -- the Old Economy barometer -- fared slightly better than the Nasdaq this month, showing a marginal negative return of 0.1 per cent and closing at 10,521.98. The Standard and Poor's 500 (S&P 500) -- a broader gauge of the US economy -- shadowed the DJI, closing at 1,430 and posting a negative return of 1.6 per cent. The Toronto Stock Exchange index touched an all-time high of 10,696. It posted a positive return of 1.7 per cent to close July at 10,406.

As usual, the Nasdaq effect did not stop at the US borders and affected the global markets, particularly the Tokyo Stock Exchange. The Nikkei touched a new low; in fact, it ended July thus. It posted negative returns of 10 per cent, closing at 15,727.49.

Many factors made July a rough month for the Nikkei. The Nasdaq plunge did not help, making investors nervous. The Nikkei dropped by 700 points in one day, which was fuelled mainly by financial uncertainty following the collapse of Sogo and the resulting credit consequences of the firm's bankruptcy. Falling confidence in the credit structure of the Japanese financial market, in turn, led to selling pressure created by overseas investors and stock selling as a result of unwinding of cross-shareholding.

Bankruptcies seem to haunt the Japanese financial structure and it is now uncertain whether the highs the Nikkei touched in March -- fired by the increasing confidence in the economy and the resulting capital inflows -- will be seen again.

On the whole, the year 2000 is probably one that most Asian markets would like to forget. Apart from a few highs, most Asian indices lost the ground they made in the beginning of the year. The Hang Seng, however, bucked the trend and touched a new high this month, apart from being the third best performing index. It posted a return of 3.4 per cent to close at 16,840; it had touched a new high of 18,397. The index has performed relatively well for the last couple of months after losing ground in tandem with others in April. It gained 2.5 per cent this year and a strong 28.2 per cent over the past year.

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The Hang Seng epitomises the meaning of a weighted index as three companies -- China Mobile Telecommunications, Hutchison Whampoa and HSBC Holdings -- account for 60 per cent of the weight, and the performance of the index depends on these firms. Therefore, it would be fair to say that the prospects for the index weigh heavily on the future of these companies which, analysts feel, are becoming gloomy with competition hotting up, especially in the telecommunications sector.

Continuing the focus on Asian market, the Manila composite index posted negative returns of 7.5 per cent to close at 1,417.17.