To p i c s & R e g i o n s
Stock Market Volatility
No Reason For Panic Allianz Asset Management
chief investment officer Udo Frank
Allianz Asset Mangement CIO Udo changes of this dimension emerge in a century. nonetheless have to differentiate between the
Of course, the potential cannot be fully markets. We prefer markets where we see
Frank sees further grounds for exhausted today or tomorrow. But the stock major efforts to restructure the corporate sector
equities investments in the market is trying to anticipate the long term and where governments are pushing compa-
results. nies in this direction. Examples here are Korea
following interview. To what extent are market valuations for Inter- and Thailand.
net shares based on exaggerated optimism? Is the Japanese economy finally coming
At some point market euphoria about this new around?
GRR: The Dow Jones breaks one record industry will wear off and players will view the The Japanese economy is currently benefiting
after another. Is the next US market crash just development more realistically. The high share from the large fiscal stimulus packages. But the
around the corner? values cannot continue forever. There will be a overall outlook is far from clear. Unemploy-
Frank: I do not believe in extreme scenarios very exact process of selection. Many compa- ment is expected to rise and falling wages will
either way. There was a stock market crash in nies will be successful while others will disap- keep disposable income weak. This limits the
the 1920s and another relatively drastic share pear from the trading screens. The main prob- extent of the economic recovery. On the other
price fall in 1987, but I do not think it is correct lem for the investor is that he hardly has any hand, the Japanese corporate sector has started
to see that as the natural trend of markets. It is reliable information on which to form an accu- restructuring, improving the outlook for the
simply impossible to predict such develop- rate estimate of which companies will survive Japanese equities market.
ments. over the long term. That’s why it is best to In general, what particular types of shares do
Does that mean that you expect a continued diversify investments over a wide range of you favor at the moment?
upswing in the US economy? small holdings. Even if he has to write off losses We are more oriented to business sectors or
The US never ceases to amaze us with its for a few individual shares, he will still earn countries than to individual shares. We remain
steady and relatively dynamic growth, with the more than with the traditional industrial blue convinced that growth stocks in technology,
creation of many new jobs, and with its ability chips. This is also the case for shares in the area telecommunications, pharmaceuticals and
to attract a high level of investment in all eco- of genetic engineering and biotechnology. biotechnology are better equipped to produce
nomic sectors and particularly in the technolo- Will the US stock market continue to lead the solid gains than the value stocks—the industri-
gy-intensive sectors. At the same time, the pack? al cyclicals.
country has registered practically no inflation. Wall Street continues to be the trendsetter for What do you expect from foreign exhange rate
Capital markets have reacted positively to this the rest of the world. And if the US market trends for the G3 currencies in the
situation for a long time. The Dow Jones Indus- weakens, other markets will follow suit. How- second half of the year?
trials Average has risen sharply and US market ever a consolidation or a slight decrease in US The US dollar should weaken relative to the
valuations now appear to be somewhat high share prices probably would not have a signifi- euro during the course of the year as the rela-
based on traditional measurements, such as the cant negative impact on other markets. In fact, tive growth dynamic shifts towards the euro
price-earnings ratio. However, the heavy high- some regional markets could well outperform zone. The major risk for the US dollar has not
tech component in the share index needs to be the US. changed—the US current account deficit con-
taken into account. The weighting of these What about the German stock market? tinues to be financed by foreigners. The Japan-
shares in the index has increased over the Over the long term it may well outperform the ese yen, for its part, should remain fairly stable,
years. When they are subtracted from the Dow, US. But first Germany needs to pass necessary unless the Bank of Japan starts monetizing gov-
the overall performance is far more moderate. reforms. The market’s potential is enormous ernment debts—which we do not expect.
But these shares—especially the Internet but policymakers must first take the needed
shares—are considered by many to be a prob- steps—primarily tax and structural reforms. With any questions or comments
lem due to their volatility. What do you think about Asian markets now please contact:
They are volatile. But one must keep in mind that the worst of the banking and credit crisis Ilja-Kristin Seewald
that this sector has developed in the span of appears to be over? Corporate Communications
only a few years. I believe that a true revolution The outlook for Asia has definitely improved. Allianz Asset Management
is underway here. Only a few technological Industrial production has returned. We E-mail: firstname.lastname@example.org
36 Global Risk Report 2/99