By David Potts, Business Editor July 21 2002 The Sun-Herald
The sharemarket is braced for a Black Monday after a 390-point plunge on Wall Street which could see up to $20 billion wiped off share values in panic selling tomorrow.
"This is the hangover after the party," said Angus Geddes of internet-based share tipsheet Fat Prophets.
Analysts were stunned by the size of the fall and one said panic had taken over from greed.
"Oh boy!" said Peter Mouatt, head of active equities at Macquarie Funds Management. "It's a crisis of confidence. The only thing that can turn this around is the reporting season, which is just about to get under way in the US."
The Australian sharemarket could drop by 50 to 100 points tomorrow warned Anton Tagliaferro, investment director of Investors Mutual.
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That would wipe up to $20 billion off share values.
"Our market will be knocked around a lot less, but anything could happen," he said. "The US is looking worse than 1973."
Analyst Richard Gintel warned "this is not a one-off. It is a sign this will be entrenched, very much part of a pattern. It's a total loss of confidence".
So far our sharemarket has been mostly spared from the Dow's nine-week-long meltdown. Although the broader S&P500 fell 3.8 per cent to 847.7, it was the 4.6pc plunge in the Dow Jones, which consists of only 30 stocks, that was repeated in London, where the market fell 199 points.
There were even bigger losses in Frankfurt and Paris. If this is repeated here, the slump would be more than 150 points.
At one point the Dow was down 442 points. But analysts said changes to the S&P index had also made the market more volatile as fund managers change stocks to copy those in the benchmark.
A poll by CBS shows investors fear the Dow will plunge to 6500 before the meltdown is over. That would make this the worst bear market since the Great Depression.
WorldCom is expected to file for bankruptcy tomorrow, making it the biggest corporate collapse ever.
As panic grips Wall Street, economists talked up prospects, pointing to a sound underlying economy.
The central bank, the Federal Reserve Board, raised its forecast of GDP growth from 2.5pc to 3pc to between 3.5pc and 3.75pc.
A market meltdown as the economy is picking up steam is unprecedented.
Chairman Alan Greenspan has said "additional revelations of corporate malfeasance" threaten the recovery by undermining consumer confidence.
"More and more people are getting out," one fund manager told Bloomberg News. "They've watched their portfolios go down, down, down, and now they just want to protect what they've got."
Former golden-haired tech stock, the giant Sun Microsystems, slumped 27pc after warning that the current quarter's results were being affected by difficult business conditions.
PepsiCo also said growth was slowing.
"There's a panic going on and it has to run itself out," said another US fund manager. "I'm very worried about earnings growth, and then there are all these accounting shenanigans."
The latest scandal has hit Johnson & Johnson. The company's admission that one of its drug factories is under criminal investigation explained nearly a fifth of the Dow's loss.
In just two weeks Wall Street has plunged 15pc, its worst performance since the 1987 crash.
"The Dow could drop further, but it's not the end of the world," said Mr Tagliaferro. "I'll be buying.
"Our share valuations are more attractive than those in the US," he said, citing stocks such as Goodman Fielder, Telstra, TAB and Lion Nathan.
And Mr Geddes predicted a good day for gold shares tomorrow following a jump of $US5.25 in the gold price to $US322.90 an ounce at the London fix.
Mr Mouatt predicted a 1 or 2pc drop tomorrow, but said prices had dropped too far based on pure valuations and "issues like accountancy fraud and executive options aren't as prevalent here".
John Bowie Wilson, director of BNP Paribas Australian Equities, said investors should "hold your nerve".
"The only part of the economy that's not in a decent state is the sharemarket."
