After two days of sharp falls, yesterday's modest revival in the Hang Seng Index was almost inevitable. But unless investors learn from this week's losses, further declines may be only a matter of time.
In the US, that lesson shows signs of already being learned. For two successive days, the technology-laden Nasdaq Composite Index has continued to fall even as the blue chips in the Dow Jones Industrial Average regained many of their earlier losses. This reflects economic reality. Namely, that the outlook for most industrialised economies remains strong, barring some unpleasant surprise in the US employment figures released overnight. But, on the other hand, no one seriously doubts most hi-tech stocks are still ridiculously over-valued.
The Internet is certainly changing the world. In time it may even generate huge profits for a lucky few. But many, perhaps most, of today's e-companies will fail before that happens. And there is certainly no economic justification for the stratospheric valuations which markets around the world have rushed to attach to any business even vaguely involved in hi-tech.
After two years of ignoring this, the recent divergence between the Nasdaq and the Dow Jones suggests such realities are finally beginning to be recognised in the US. But, in Hong Kong, where Internet mania is a more recent phenomenon, it is far from clear if this message has sunk in.
Although the picture was mixed, some hi-tech stocks were on the rise again yesterday. While the correction earlier in the week partially deflated the Internet bubble, companies such as Pacific Century CyberWorks are still trading far above their economic fundamentals. Other smaller Internet businesses have hardly any assets and may be essentially worthless.
Yet all around the SAR the talk is still about making more money by piling back into such stocks before they start soaring again.
