Doom and gloom merchants have already fallen in love with the so-called millennium (Y2K) bug. But in the financial markets, it’s a ill wind indeed that blows no good to at least some investors.
The Y2K problem is already predicted to add billions of dollars to companies’ bottom lines in the coming two years as they deal with everything from failing lifts and electricity systems to breaks in their supply chains.
Meanwhile, some countries have issued warnings to their people to stockpile several weeks’ worth of food and essentials in the weeks prior to December 31, 1999. Time magazine recently carried an apocalyptic cover story linking the bug with the end of the world as we know it.
But although most investment experts agree that in the lead-up to the big day there will be a “dash for cash”, as panicked investors look for liquidity and flexibility, some are already seeing the bright side.
Anna Maria Kwan, head of investment products with the Colonial group, believes that this dash combined with the fall-out from the Y2K bug’s impact could offer significant opportunities for some investors.
Kwan says that although the millennium bug poses serious risks for many listed companies, astute fund managers and investors can turn this situation to their advantage.
“It will be a once-in-a-lifetime opportunity to buy into a healthy market that is significantly marked down by external events,” she says.
However, she warns that many advisers will be faced with a conundrum when advising their clients what to do in the lead-up to the event. They will need to choose between whether to advise the clients to seek the flexibility of cash or to stay in the market and wait for the long-term upside.
The solution, she says, will depend on the client.
“If a customer is close to retirement, obviously a fall in the equity markets of say 30 per cent – not beyond the realms of possibility – could significantly affect the quality of retirement that person enjoys,” she says.
Such a fall is possible because the Y2K bug has the potential to disrupt and even shut down manufacturing and distribution. The effects of such disruption on the customer bases of some companies could cause them to collapse altogether, Kwan says.
“If an individual’s super fund has invested in the collapsed company there will be a significant hit to the investor, who will have no access to funds,” she warns.
“The value of the fund could diminish due to the lack of systems access and hence on-going involvement from fund managers.
“The same is true for companies that will survive but be unable to undertake transactions for a period of time.”
But for more “fleet-footed” investors who cash out at the top of the market, Kwan says there will be “a real chance to pick up some real bargains by re-buying in January, 2000.”
“Good quality stocks will be marked down by the uncertainty, which will provide a great buying opportunity,” Kwan predicts. “Of course, this will test the mettle of fund managers to ensure that they have selected stocks that will rebound from the Y2K crisis and be able to thrive in the new environment.”
However, she says advisers with mid-cycle and non-aggressive clients “would probably advise that they hold their position through the storms of uncertainty”
