The Asian Factor: What’s A Baht? Investors Scratch Their Heads Over Puzzling New Factors In The Stock Market
Mike Andrezzi did his homework before investing $70,000 in stocks. And despite this week’s ups and downs, he’s sure the market’s the place to be. But one thing baffles him: Where do the baht and the Hang Seng fit in?
“When I’m investing in a stock in this country, I don’t see that it should affect me when another country has a problem,” said the engineer from Mantua, N.J. “It’s hard enough to stay on top of this.”
Just when Main Street investors started to become fluent in options trading and savvy about circuit breakers, along comes talk of exchanges and currencies from the other side of the planet.
That jitters on Hong Kong’s market and the devaluation of regional currencies such as Thailand’s baht could trigger Monday’s nosedive on U.S. markets underscores the globalization of the world economy.
But it’s darn confusing for investors who think Asia is “the other side of the moon,” said Dave Petersen, a Silver Spring, Md., investment adviser who’s getting calls this week from clients asking about the region.
“They say ‘I’ve been reading about Asia and it’s falling apart … How’s this going to affect us?”’, said Petersen, who sold all his international investments in August based upon his nightly scans of Pacific news on the Internet.
In many ways, investors are right to wonder.
The United States is more and more tied to global economies. Witness the growth of U.S. exports as a percent of gross domestic product, to 11 percent today from 7 percent in 1990. One quarter of U.S. goods are exported to the Pacific Rim.
Recent domino-like developments further illustrate the trend. When currency turmoil engulfed Thailand this summer, regional currencies and stock markets were shaken, prompting a reappraisal of many Asian economies.
After the market fell repeatedly last week in Hong Kong - once thought immune to Asian currency jitters - U.S. investors worried how much the troubles would affect America. On Monday, such fears triggered the big U.S. stock market slide that included a 554-point drop in the Dow Jones industrial average.
Fed Chairman Alan Greenspan said Wednesday the Asian turmoil should have a “modest but not negligible” impact on the U.S. economy. Bruce Steinberg, chief economist for Merrill Lynch, expects the Asia troubles to reduce the U.S. gross domestic product growth by half a percentage point to 2.5 percent in 1998.
Given such trends, some say Americans should worry more about international events. “We look at investing and think 98 percent about the U.S.,” said Bruce Huber, chief equities strategist for the investment firm Piper Jaffrey. “We’re going to have to pay more attention than we have to the global economy.”
But many say that’s no reason for small investors to follow every Asian economic burp, including plunges in foreign stock indexes like Hong Kong’s Hang Seng. “They don’t need to worry too much about the (Malaysian) ringgit,” Steinberg chuckled Thursday.
Tom Silcott, a retired Westinghouse executive, isn’t jumping to track the baht’s daily progress. But he’s convinced Americans should be looking outside their borders more than they do - and he’s found himself doing just that.
“The Brazil market went down 10 percent today,” he said. “A year ago, I wouldn’t have paid any attention to that. I’m paying more attention now to the whole scene.”
Graphic: Red October