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Shirley Yam

Okay, okay, I am going to answer the No1  question that has crowded my mail box, popped up in alumni gatherings and even taxi trips last week.
Is it time for bottom fishing?
Those of you who have just arrived in this town to escape from the doomsday mood at home must find the locals brave or crazy, depending on how deep you are in the stuff.
Well, this is Hong Kong where one in every 20 adults is a millionaire. Many, among them professionals and senior managers, have seen their bank deposits swell, helped by the economic boom since 2003 and the saving mentality bred by the Asian financial crisis.
They have seen many crises. But with hindsight, these  all turned out to be missed opportunities for  buying low by  some investors. China Mobile touched HK$15 during the 2003 Sars outbreak  and stands above HK$60  nowadays. Many investors are still in dreamland with the Hang Seng Index's record high of 31,638.22 points in mind.
There are signs that things are stabilising. Governments worldwide have promised the ultimate bailout with significant capital injections and deposit guarantees. Interbank rates are coming down. Bank results are above expectations.
Corporate lending has re-emerged after weeks of inactivity. Shanghai Industrial Holdings, a second-tier listed conglomerate, has just received a HK$2 billion  syndicated loan from banks.
Yet, a listed toy manufacturer, Smart Union, has closed down, leaving thousands protesting outside the Dongguan government office, followed by a 67-year-old electric appliance retailer going under.
But many will say  aren't there  unavoidable casualties in every economic adjustment?
With the Hang Seng Index slumping by more than 50 per cent  from its peak, valuations are indeed very tempting.
But before you jump on the bandwagon, perhaps, I should share with you some stories.
First, the Shanghai Industrial loan is a club deal -  the Shanghai government-owned enterprise had to knock on the door of 'friendly' banks to get the money, and the terms were committed way before the latest financial meltdown.
Second, construction sites are piled high with steel bars and all kind of materials.  Not because they are needed for immediate use but because building companies can no longer get loans with tender-awarding documents allowing them to accept progress payments from developers.  Instead of storing materials in warehouses and moving them  when needed, they are delivered upfront and the developer hands over the cash.
Three, a big  developer which only last year tightened project completion time to 24 months has just told its project manager he wants no completions for 36 months.
Fourth, a large  bank in Hong Kong has informed its lending people that asset growth for next year  will be zero.
None of these  happened during the Asian financial crisis.
They  reflect an unprecedentedly bearish assessment of the future. The corporate loan head of a  large bank  summed it up best: 'In 1997, we didn't trust the corporates in Asia. Now, we don't trust each other worldwide.'
Many believe we can count on  the mainland. But it is important to note that key  steel plants up north have just announced an almost unanimous 30 per cent production cut. The last time they did that  in 1996 it took three years to recover.
And don't forget that in 1996 there was an iron-fisted premier instead of the present consensus-seeking leadership. How effective and efficient an economic booster it  can be is doubtful.
It is true that much has been done to address the meltdown caused by the credit-related derivatives. The full impact of these products is gradually unwinding.
However, the real challenge is  in assessing the impact of the liquidity that has been injected by central banks and the government bonds that would be subsequently issued to fund the bill. What does it mean for currency, price levels and the global economy remains unknown.
If history can offer any clues, it is perhaps necessary to recall the last global economic upheaval - the 1973 oil crisis. Many  local investors are too young to know its brutality.
Triggered by an oil embargo decision by Opec members, the oil crisis pushed the Hang Seng Index from the 1,775-point peak in March 1973 to 150 by  December 1974. It did not regain those heights  until 1981.
During the crisis, the S&P 500 Index in the United States dropped 40 per cent to 69.72 points in 1974. The index has slid 36.38 per cent so far this year but one should note that the current price-earnings ratio remains above the 7.28 times oil crisis record. I haven't even mentioned the global inflation that followed.
Hopefully, having read so far, you have gathered enough fear in your heart to drive out the greed.
In short, how can a market  possibly hit the bottom when there is still wealth to drain and many people are looking to  bottom-fish? The answer is in the question.



Key to bottom fishing  lurking in the details