Asia's Wake Still Turbulent

The stock market storm from Asia just keeps blowing harder, with a ferocity that keeps catching many US investors by surprise.

It knocked the legs out from under Wall Street last week, sending the Dow Jones Industrial Average down 110 points on Thursday, then 90 points on Friday.

The loss of Asian customers threatens serious impact on corporate America.

"Every day another major US company says the same thing, that it's earnings will be down," says Robert Dickey, a managing director at broker Dain Bosworth & Co., in Minneapolis.

Giant consumer-products company 3M (Minnesota Mining and Manufacturing), also in Minneapolis, last week forecast a 10 percent drop in fourth-quarter earnings because of Asian currency turmoil.

"It seems like investors are in a state of denial about how big the Asian crisis could be," Mr. Dickey says.

Among the potential impacts: slow economic growth worldwide, downward pressure on prices, and lower corporate earnings.

Strategic shift

That suggests to many analysts volatile times ahead, and two strategies in response: stocking up on conservative investments, such as growth-and-income mutual funds, or taking a more active role in your investing - looking for spots to buy or sell.

The first approach calls for adding defensive plays, such as retail firms or funds. They tend to do well in down as well as up markets.

The second strategy calls for increasing the amount of cash in your account. Some experts favor as much as 50 percent cash. It becomes a shield from sharp downward swings in the market, with the added benefit of available funds to snap up bargains.

In any event, be extra cautious about stocks or mutual funds with an Asian tilt.

The Asian impact could be "significant" for many major US companies with an international exposure, says Ralph Acampora, chief technical analyst at Prudential Securities. Low-cost Asian imports will soon flood US markets, he says, putting downward price pressure on US manufacturers such as General Motors. "We're all going to be buying lower-priced Japanese cars," he says.

Lower prices mean lower corporate profits and greater volatility on Wall Street, Mr. Acampora says.

Until recently, he had predicted the Dow Jones Industrial Average would reach 10000 in 1998. Now, forget it.

Smart bull

Acampora's new prognostication: the first half of 1998 looks good, with the market rising. But look out in the second half, when the market heads for "a major low." The Dow will not reach 10000 until 1999, he says.

"We should be prudent bulls," says Acampora. "Rotate into biotech stocks, utilities, REITs [real estate investment trusts]. The year will be difficult for small-cap stocks."

Slow growth in economy

Bruce Steinberg, chief economist at Merrill Lynch & Co., sees Asian turmoil cutting US growth by at least half a percentage point and pulling interest rates down.

For investors, that means "buy quality," says Richard McCabe, Merrill's chief market analyst, strong companies - or mutual funds that invest in them - with an outlook for stable growth... companies such as General Electric.

While the first quarter should be good for the stock market, the rest of the year will be sailing southward, Mr. McCabe forecasts.

He sees a market decline of up to 25 percent, with the year delivering "flat to down" returns. McCabe likes financial and insurance stocks, retailers, and pharmaceutical companies.

Some defensive adjustment seems in order, he says. Technology stocks, he believes, could keep falling, since many are export-oriented.

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