Stock Market Volatility No Reason For Panic by FJ84JKFD

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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: ilja-kristin.seewald@aam.de




36                                                                                                                                      Global Risk Report 2/99

								
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