Four lessons to draw from the world's stock slide

PARIS -- At least four lessons may be drawn from the roller- coaster ride taken by the world's stock markets, experts here say.

* A meltdown was never more than a remote possibility.

Prices on Wall Street and most other major stock exchanges had soared so high during the past few years that there was plenty of fat in the system to prevent the kind of catastrophic crash that would have made alarmist words like meltdown appropriate. The U.S. stock market may have suffered its biggest single one-day fall in points on Monday, but even at its lowest ebb, the Dow Jones average remained higher than it was at the start of the year. The same was true of European markets, where most investors remained better off than they were 10 or 12 months ago despite the battering. The knowledge that there was still a long way to go before a real crisis occurred accounted for the relative calm of a large number of investors and brokers alike. That mood did not square with most of the panicky newspaper headlines when the markets appeared to be in headlong retreat. The selloff demonstrated that investors are, by and large, more sophisticated than they once were. Compared with their panic in the last big market fall in 1987, investors kept their nerve and were slower to jump ship this time. As French broker Gerard Slama put it: "Everyone had been expecting a substantial market correction, so few were surprised by what happened although they may have been surprised at where it began." * There was alarm at the fact that what started as a regional financial storm in Asia then turned global, but the worldwide impact proved to be a blessing in disguise. Large amounts of western capital entered the markets once stock prices began looking attractive, and they shored up not only U.S. and European markets but hard-hit Hang Seng in Hong Kong as well. "What the selloff showed was that much cash liquidity already existed," Slama explained. "For months, prudent investors had been liquidating a portion of their portfolios and keeping a higher proportion of their assets in cash. So there was plenty of money to plow back into the market at the right moment." * Few analysts now expect the bull market to take off again, but the events of the past few weeks could paradoxically help keep the stock markets buoyant and maintain U.S. prosperity. The reason is that the Federal Reserve and other central banks are expected to hesitate about raising interest rates in the foreseeable future. Indeed, according to some experts, higher interest rates won't be needed, at least for some time, because the market turmoil has reduced inflationary pressures. "With no threat of higher interest rates, a period of somewhat slower but steady growth is foreseeable," predicted German banker Hans-Otto Gehringer. * Just because a crash was averted this time, nothing says it can't happen later. Analysts here emphasize that Hong Kong, for all its dynamism and economic glamour, was never a likely starting point for a global conflagration. The main danger-spot remains Japan, according to several specialists who said the latest market gyrations have rendered that country's economy -- the second biggest after that of the United States -- more vulnerable than ever. On Monday, Japanese officials conceded for the first time that their economy may be about to plunge into a full-fledged slump. The Tokyo stock market -- the one major exchange that didn't share in the recent global bull market -- fell to its lowest level in nearly three years although it recovered a bit on Wednesday. Japan has invested more heavily than any other country in the shaky Southeast Asian markets and has therefore taken the heaviest losses. Japan's banks, which had barely recovered from their losses in the real estate collapse of the early 1990s, may take a further financial beating. "The Japanese banks' losses in Southeast Asia could prove to be the overseas equivalent of what happened to them domestically with the end of the property boom," according to Frank Satsumi, a specialist on Japan who advises the Paris-based Organization for Economic Cooperation and Development.

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