By Rob Hosking
Thursday 20th April 2000
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"Over the past six months or so there have been two larger falls - in September-October last year and February-March this year," he said.
"But because they took place over a longer period of time, there weren't any big headlines and no one was phoning up asking me to comment for national television." Furthermore, the drop took average asset prices back to where they were in November - "which is hardly a calamity."
AMP, which released its annual results and market predictions this week, believes while the long-term outlook is positive, "the near term could be savage."
While the immediate catalyst for the market falls appeared to be factors such as the US Department of Justice decision in the Microsoft antitrust cause and last week's high US inflation figures, these were not the main causes.
The main problem was a surge of retail investors pouring borrowed money mainly into high-tech stocks.
The official margin debt to market capitalisation ratio roared past around 1.2% to 2.3% over the past nine months. Historically, the ratio has never gone past 1.7%, and then only briefly, in the mid-1980s.
"The increase in margin debt sued to buy equities was out of line with anything seen in the past 30 years," Mr Dyer said.
The main problem now was investor mood, he said. From euphoric talk of a new paradigm, investors would be weighing up their options in a slowing economy with increasing inflation - and with stock prices still at inflated levels. While the initial impact of the shakeout of the technology sector was beneficial overall, if investors became unnerved and dumped stocks, the process could spiral downward, he said.
But so long as this did not happen the fall would, in a year's time, be seen as a mere blip. And so long as investors' nerve held, the flow-on wealth impact from the market slide was likely to be slight, he said.
"To put it in some sort of perspective, in the 1987 crash the fall was larger by a factor of between two to four times, depending on how it was measured. But globally the wealth effect was minimal."
Meanwhile, AMP's global active and passive funds recorded gross returns of 30.2% and 30.3% for the year ended March 31. The company had shifted the balance of its local funds away from global equities about two weeks ago, he said.
It was now too late to reduce the company's exposure any further.
While there would probably be a "volatile ride" for equities over the next few months, the earnings from those offshore investments were robust, Mr Dyer said.
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