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SCMP Reporter

WALL Street's techno-bubble is growing to vast proportions, with a wall of money coming from retail mutual fund investors in the United States.

  New York stock trading has entered a classic bull-crash scenario of the ilk seen in previous investment hungers or bubbles, including conglomerates in the 1960s, electronic stocks in the 1970s, bio-technology stocks in the early 1980s and junk bonds in the late 1980s.

  Bubbles have a long pedigree and take any collectable imaginable.

  For instance, the Dutch tulip bulb bubble burst in 1637.

  In Asia, we have seen bubbles burst in Japan, especially warrant funds in 1990, closed-end country funds burst in the late 1980s to 1991, and the famous China fever that seemed to grip the world in 1992.

  This column is not saying Wall Street is due a major correction in the week ahead. But it will come, even if not for months yet. This is an overhang which investors in Hong Kong should be aware of.

  The problem with crashes is that, by their nature, they are not predictable, especially regarding their timing. What will trigger a big correction in the US will be disappointment along the line that blew up junk bonds in 1989, when United Airlines financing failed. This time around, it could be disappointing results from a key techno-stock.

  A new round of interest rate cuts in the US seems less likely all the time, so the stock market is vulnerable to the 30-year long bond yield, which stood at about 6.898 per cent on Friday, dangerously close to seven per cent as opposed to the 6.5 per cent it was at just three weeks ago.

  On Friday, Bloomberg reported US bonds fell after the issue of a consumer confidence survey showing consumers were becoming more optimistic.

  'Bond investors interpreted the survey as a sign consumers would spend more, boosting the economy and reviving the threat of inflation,' Bloomberg reported.

  On the year to date, the Hang Seng Index is up 15.38 per cent and is in 20th place in the top 50 international indexes followed by Bloomberg. On the last six months, the index is up 29.5 per cent and is the third best performing index over the period in the Bloomberg top 50.

  The Dow Jones Industrial Average is up 22.98 per cent over the year to date and sits in seventh place. By comparison, the best performing index is the Turkey stock market composite, up 65 per cent on the year to date.

  The Hang Seng Index is on a current price earnings ratio of 13.2 and a prospective price earnings multiple of 11.65 times, according to data from SBC Warburg.

  Many strategists argue this is still too high from a historic view point. This is especially so as the property sector remains in the doldrums, a domestic interest rate cut is not in sight and corporate earnings look poor.

  A big sentiment cruncher will be the figures released from HSBC for the interim period to June 30. These numbers are due on August 14 and Cheung Kong along with Hutchison Whampoa are due out on August 24.

  In the absence of some big shock coming from the US or China, the Hang Seng Index should continue to trade sideways, between 9,250 and 9,550.

  On the diary in the coming week in the US are personal income and spending numbers for May today. In April, income fell by 0.2 per cent and spending rose 0.2 per cent.

  Tomorrow there are import and export prices for June. In May, import prices rose one per cent and export prices rose 0.3 per cent.

  On Wednesday, the US commerce department issues figures for June leading indicators. In May the index decreased 0.2 per cent.

  On Thursday, factory orders for June are due out. Orders were up 1.4 per cent in May.

  On Friday, the July unemployment figures are expected. In June, the unemployment rate rose 5.6 per cent while non-farm payroll jobs rose 215,000.



Wall Street technology bubble set to deflate