LONDON: SHARES AGONY FOR MILLIONS

September 10, 2001

SMALL investors were warned yesterday that they are facing five years of shrinking savings.

Plunging stock markets will hit many millions of people through pension schemes, endowments and savings accounts.

City analysts said the 'glory days' of savers cashing in on a buoyant stock market are over.

Share prices in both London and New York recorded sharp falls last week and there are fears that more bad news is on the way. Worries about the world economy are likely to send the FTSE-100 index of the most important companies in the UK as low as 4,500 - a far cry from its high of nearly 7,000 in 1999 and well down on its 5,070 value on Friday.

Investment guru Tony Dye warned yesterday that shares may not keep pace with inflation for the next five years.

'We think we're in for a pretty tough time for a long period,' said Mr Dye, the former chief investment officer of top fund manager Phillips and Drew. 'Investors should put on their tin hats.'

Mr Dye, who left Phillips and Drew after he refused to buy into the boom in technology shares and now runs his own fund management group, described recent runaway investment returns as 'the most excessive financial bubble in history'.

His stark prediction will dismay millions of people who have put their money into the City and could see much of it wiped out.

Over half the wealth owned by UK households is directly or indirectly in stocks and shares, including millions of pension schemes, endowments, life assurances, PEPs and Individual Savings Accounts.

Collapsing share prices have already slashed the total by GBP 300billion in the last 12 months - equivalent to GBP 5,000 for every man, woman and child in the country.

Some holders of endowment mortgages have been warned that their investment may not cover their home loan, while many pension schemes are facing cash shortfalls.

The latest predictions will raise fears that Britain is set for a full-blown recession. Plunging investment returns would hit consumer confidence and put an end to booming High Street sales.

The collapse comes after years of soaring share prices, with booming economies around the world largely driven by hi-tech companies.

Between the beginning of 1997 and the end of 1999, UK shares rose a staggering 70 per cent - or almost 3,000 FTSE points.

Some investors gained as much as 20 per cent a year more than inflation and the continued rises tempted many newcomers into the stock market.

Some 12million people now have pensions heavily linked to stocks and shares, and millions more have savings tied to shares in schemes such as PEPs, unit trusts and ISAs. Many are 'tracker' funds directly following stock market movements.

There are also six million households relying on endowments to pay off their mortgages. Almost all are likely to be badly hit by falling share prices.

The FTSE 100 index reached an all-time high of 6,930.2 in December 1999, but has fallen back as the technology bubble burst.

On Friday it plummeted 134 points, or 2.6 per cent, to 5,070.3 - more than 270 points down on the week and the lowest for three years.

Analysts believe it will carry on down through the 5,000 mark this week.

Today's trading is expected to reflect the dramatic falls on Wall Street on Friday, after the UK market closed.

The Dow Jones shed 235 points to close at 9,606 following disappointment at a sharp rise in the U.S. unemployment rate.

Wall Street is expected to fall further this week as investors anticipate more bad news. On Friday, figures will be released on the state of U.S. retail sales, consumer confidence and industrial production.

Experts fear the U.S. gloom will spread to the UK, where investors' resolve will also be tested by a stream of economic data, including unemployment figures for August.

The global slowdown has already sent UK manufacturing into recession and technology companies have struggled to cope.

Other sectors are also in trouble and banks are suffering heavily because of worries that they could be saddled with bad debts.

Jeremy Batstone, head of research at NatWest Stockbrokers, said: 'This is a terrible environment for the long-term investor. It is hard to see how shares will recover.'

Top Financial News

09/09 20:59
Asian Stocks Fall, Led by Sony, Samsung Electronics; N.Z. Drops
By Yukiko Takai

Tokyo, Sept. 10 (Bloomberg) -- Asian stocks fell, led by exporters such as Sony Corp. and Samsung Electronics Co., after the U.S. jobless rate in August rose to a four-year high, suggesting U.S. consumers may spend less on the region's goods.

The Nikkei 225 stocks average dropped 1.7 percent and Korea's Kospi slumped 1.2 percent. Australia's S&P/ASX Index fell 1.1 percent, led by News Corp., on concern its U.S. earnings will be crimped.

``Rising unemployment in the U.S. is a sign that we may be entering a global economic recession,'' said Hidenori Kawasaki, an equities manager at Kokusai Securities Co. ``What concerns us is that domestic demand-related companies such as steelmakers are joining computer-related companies in lowering profit forecasts.'

In other markets, New Zealand's Top 40 Index fell 1.9 percent, led by Air New Zealand Ltd., as the nation's dominant airline resumed talks with Australian officials about ways to quit its unprofitable Australian unit Ansett Holdings Ltd.

The U.S. government Friday said joblessness in August rose to 4.9 percent as factories fired twice as many workers as in July. Japan's trade surplus shrank 48 percent in July as slowing demand in the U.S. and Asia drove exports lower for a fourth month, the Japanese government said last month.

Japan's Sony fell 1.6 percent to 4970 yen. The maker of the PlayStation 2 video game console depends on the U.S. market for a third of its operating profit. Canon Inc., Japan's largest maker of automated office equipment, fell 0.3 percent to 3520 yen.

Toyota Motor Corp., the No. 3 automaker, slumped 0.5 percent to 3680 yen. Fuji Photo Film Co., the second-biggest filmmaker, declined 1.3 percent to 4570 yen. The U.S. market accounts for half of Toyota's operating profit and accounts for more than a quarter of Fuji Photo Film's global revenue.

Nippon Steel Corp. and other steelmakers also declined after Japan's largest steel company cut its full-year profit forecast by two-thirds.

Nippon Steel dropped 3.1 percent to 158 yen after it lowered its group net income forecast 67 percent to 20 billion yen ($165.3 million) for the year ending March 2002, compared with the 60 billion yen it forecast in May, as slowing growth in its domestic and export markets reduced demand and prices for steel.

Kawasaki Steel Corp. declined 3.8 percent to 126 yen after Japan's No. 3 steel company cut its net income estimate for the full year to 13 billion yen, from the 20 billion yen it forecast in May.

Japan's steel companies need to close mills and fire workers to compete with rivals such as Korea's Pohang Iron & Steel Co. and China's Baoshan Iron & Steel Co. as slowing economic growth reduces demand from automakers and other users.

The Nikkei fell 176.48 to 10,340.31, the lowest since Aug. 8, 1984. The broader Topix index slid 1.9 percent to 1060.45, the lowest since Jan. 14, 1999.

Korea

The Kospi shed 6.72 to 548.36. Samsung Electronics, the biggest computer-memory-chip maker, fell 0.5 percent to 190,000 won. Anam Semiconductor Inc., a semiconductor-related component maker, lost 1.4 percent to 3620 won.

Adding to the index's slide, Hyundai Securities Co. declined 3.2 percent to 7970 won after the brokerage capitulated on price and accepted the terms of a takeover offer from American International Group Inc. and other foreign investors.

``Some investors are disappointed as Hyundai lowered its sale price,'' said Chae Seung Ki, an analyst at SK Securities Co. ``Still, it's positive in a bigger picture as the sale will proceed.''

Australia

Australia's S&P/ASX 200 Index fell 17.10 to 3217.90. News Corp., which makes 80 percent of its sales in the U.S., fell 1.6 percent to A$14.75.

The U.S. jobless rate ``suggests advertising sales may weaken and that will weigh on News Corp.,'' said Caroline Egan, an equity strategist at Commonwealth Securities Ltd.

National Australia Bank Ltd., the nation's largest lender, fell 1 percent to A$29.00 after Chief Executive Frank Cicutto said on Nine Network's Business Sunday program that he can't guarantee there won't be further losses from its U.S. HomeSide Lending Inc. unit.

NAB has already taken $2.2 billion in charges against the U.S. mortgage unit in two months. It wants to sell HomeSide, which it values at $1.14 billion. The bank called the write-downs a ``disaster'' when it took a second charge last week.

New Zealand

The Top 40 Index fell 38.00 to 1942.60. Air New Zealand's Class B shares, which overseas investors can buy, fell 8.6 percent to NZ$0.74 after earlier dropping to a record low of NZ$0.71.

The company, a quarter owned by Singapore Airlines Ltd., resumed talks with Australian officials about ways to quit Ansett Holdings and prevent it bringing down the rest of the company.

Carter Holt Harvey Ltd. fell 5.3 percent to NZ$1.60 after Moody's Investors Service on Friday cut the short-term credit rating of New Zealand's largest forest owner by one notch on concern a slowdown in the wood products industry is hurting its ability to repay debt.

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