Few Y2K problems seen for developed markets

Short-term slide in stock prices would create 'buying opportunities'

Thursday, May 13, 1999 DENNIS SLOCUM Investment Reporter

While the Y2K computer bug will bite emerging markets hard, it will have little impact on the major stock markets of the world, including Canada's, says a leading Canadian investment manager.

Jean-Guy Desjardins, president and chief executive officer of Montreal-based TAL Global Asset Management, told a conference for financial planners sponsored by his firm that the millennium bug will create uncertainty and probably lead to volatility in all financial markets.

But any slide in stock prices would be short term and "create a wealth of buying opportunities," he said. Mr. Desjardins advised selling stocks in emerging markets, where a market correction could occur either because of real economic problems caused by Y2K or because of the perception that problems might occur.

There's a lack of reliable information to assess the progress of developing markets in dealing with the computer problem, he said. "We have very little ability to forecast what will happen."

While the emerging markets are danger zones for investors, the impact won't be severe enough to spill over to major stock markets, he argued. In fact, he puts the potential maximum Y2K-related correction in the Canadian stock market at "5 per cent or less."

Mr. Desjardins said that Y2K problems in developed markets will be marginal because they are ready for the change. He predicted that 95 per cent of Canadian public companies will be Y2K-compliant by Jan. 1, 2000.

Although some experts have suggested that Y2K computer problems may cause a global recession, Mr. Desjardins says he believes there is a low probability of this happening.

The Talvest CEO believes that stock markets will be fully adjusted for Y2K by June, 2000, and the improved productivity achieved by the forced upgrading of computer systems by companies will help boost world economies.

Another speaker, Michael Adams, president of Environics Research Group, said a recent poll by his firm revealed that one-third of Canadians are either very (8 per cent) or somewhat (25 per cent) concerned about Y2K.

About one quarter of Canadians have already raised emergency cash and taken other steps to prepare for the millennium bug, which affects computers that use two digits to read the year and may lead to confusion on dates. About 3 per cent of respondents who said they were taking steps plan on withdrawing their money from the stock market. "I think the anxiety will increase as we move a bit closer [to year-end]," Mr. Adams said.

-- Norm (nwo@hotmail.com), May 13, 1999

Answers

Mr. Desjardins needs to consult with Capers Jones, John Koskinen (see the transcript of his teleconference in late April with the APEC Y2K summit), Peter de Jager, the UN, the NIC, the CIA, the World Bank, and the Bank for International Settlements, among others. What these individuals and organizations are saying certainly does not translate into a 5% market correction. When even de Jager says that France is in big Y2K trouble, and that Germany and Italy are in even worse shape, you know what is coming. And remember, that is Western Europe, which is considered to be ahead of Asia and way ahead of Latin America. (The recent GartnerGroup report on Latin America is downright chilling.)

There are trillions of dollars in global capital flows each day--unchecked and unregulated. Major banking systems sitting on trillions of dollars in derivatives. The huge Japanese banking system in enormous trouble. Grossly inflated stock markets everywhere. Currency speculators everywhere. Big international investors about to be spooked. And I will keep making this analogy: it's all like a ship putting to sea without its cargo properly stowed and fastened down. One really big wave (from Y2K or whatever) and the cargo shifts and the ship goes down. We came a lot closer to that scenario with the Asian financial crisis than most Americans realize. This threat is what is worrying everyone from Koskinen to Greenspan to Bennett to Yardeni to Soros to the Princeton Economic Institute to the UN.

But don't tell Mr. Desjardins.

-- Don Florence (dflorence@zianet.com), May 13, 1999.

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About one quarter of Canadians have already raised emergency cash and taken other steps to prepare for the millennium bug,

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Thanks Norm. More Canadians are getting it together than the business up here :o) I know that alot of Canadains got out of the stock market cause the resource sector got hit so hard. And we have had our own melt down because of this. I just hope we stay warm.

-- Brian (imager@home.com (in Canada)), May 13, 1999.

 Don
 

you may be interested in the following testimony from the FRB in regards to the hedge fund situation
 

Testimony of Patrick M. Parkinson
 Associate Director, Division of Research and Statistics
 Hedge funds, leverage, and the lessons of Long-Term Capital Management
 Before the Committee on Banking and Financial Services, U.S. House of Representatives
 May 6, 1999
 

FRB: Federal Reserve Board Testimony from 05/06/1999
http://www.bog.frb.fed.us/boarddocs/testimony/1999/19990506.htm

-- Brian (imager@home.com), May 13, 1999.