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Not Our
Very Best Year
By Michael Alan Hamlin
December 25, 2000
For those of you who have watched
global equity markets deteriorate to new and not long ago unimaginable
lows over the past two weeks, the year 2000 is ending on a decidedly
somber note. I spent that two-week period in an activity —
or rather non-activity — fitting to the economic and market
news: sick in bed, with a flu demon that just would not stop. For
me, the good news is that I’m getting better.
But if you invest internationally,
you’re still wondering like me if the U.S. indices, especially
the Nasdaq, have hit bottom. It’s not hard to find professional
analysts who call the tactical future both ways. As for me, I thought
we had hit bottom when tech stocks began to finally show some spunk
days before the U.S. presidential election was finally concluded
with vice president Al Gore’s concession.
However, when the election resolution
didn’t sustain the rally — buy on the rumor; sell on the
news has universal applicability these days it seems — I began
to fret. By the end of last week with earnings warnings gathering
steam and analysts belatedly yet stubbornly rushing to downgrade
the decade’s high flyers, I was wringing my hands. As I sit
in my bedroom writing this column on Friday, I am resigned but confident
the market has been oversold.
But that doesn’t matter, at
least in terms of what’s up — or down — next. What
matters is that U.S. Federal Reserve chairman Alan Greenspan has:
1) Achieved his goal of slowing the U.S. economy; 2) Has probably
exceeded that goal resulting in a bumpy and potentially hard landing;
and, 3) Decided to wait another month to make sure he’s gone
too far before beginning to turn back the interest rate clock and
reinvigorate American consumer spending. Mr. Greenspan and the other
members of the Federal Open Markets Committee are widely expected
to begin a series of interest rate cutbacks when they meet next
month.
Many bruised investors as a result
are retreating to preserve what’s left of their badly dented
portfolios so that they live to fight another day. In many cases
as well, there’s just no choice: margin calls are clearly contributing
to the sell off, giving rise to the appearance of a generally panicked
withdrawal from the market. For the average American consumer-investor,
paying for Christmas in January is going to be much more difficult
than originally anticipated.
Same here. Although the region’s
economies continue to grow for the most part at impressive rates,
lowered demand for Asia’s exports in the U.S. market will begin
to have real effect in the first quarter. Even though an interest
rate reduction by the Fed in just a few weeks will begin the process
of re-stimulating demand, it won’t be felt by Asian exporters
— and their employees — for months.
This seems an awfully gloomy way
to end the year, and indeed it is. And not much in character for
me. Indeed, I’ve spent the past few weeks talking about all
the yummy things that are happening in the Philippines and other
regional economies despite the present political and social turmoil
that characterize the most prominent features of Asian economies.
From Tokyo to Jakarta, Asia is once
again racked by political and social upheaval — including mass
layoffs — on a scale not seen for decades. Unfortunately, nowhere
is that turmoil at its most poignant — and potentially damaging
— than in the Philippines. Nevertheless, within each of the
region’s economies is significantly more than the glimmer of
resurgence. Each has sectors, companies, and entrepreneurships that
find a way to prosper.
What accounts for the success of
these sectors, companies, and entrepreneurships in these times of
difficulty? Immediately, at least three factors come to mind. First,
strategic sectors have traditionally grown despite adversity because
they provide prospects for future competitiveness. This is particularly
true until recently for technology sectors. However, the past few
weeks have shown that even in these once recession-proof sectors,
a downturn can be mighty painful.
Second, is the new idea. For example,
although PC sales growth is suffering, the sale of less-expensive,
more convenient personal digital assistants, or PDAs, is growing
(Not that it helps their maker’s stock, however. Palm met earnings
expectations last week and of course was immediately trashed by
investors.).
Third is what I call mindset, and
it is merely the determined intent to succeed, no matter what. The
principal advantage of determined mindset, in my view, is that in
contributes to flexibility in thinking, and flexibility in thinking
lends itself to stimulating flexibility in business model development.
Put more simply, flexible thinkers are more willing to acknowledge
that conditions have changed in a way that makes their original
business plan inappropriate.
Rather than wait for conditions to
return to normal, which generally doesn’t — and shouldn’t
— happen, business people with flexible mindsets look for new
pathways to profitability that may range from some relatively minor
adjustments in the business model to whole scale, radical restructuring
and reform. People with flexible mindsets don’t follow inextricably
in love with their business models — or investment strategies.
So I don’t know about you, but
being flexible in mindset seems a pretty good way to start 2001.
(Mr. Hamlin is managing director
of the consultancy TeamAsia and the author of two books on Asian
economies and managing in Asia. His latest book is The New Asian
Corporation: Managing for the Future in Post-Crisis Asia. His e-mail
address is mahamlin@teamasia.com.ph.)
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