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Creating Benchmarks
Global Economy Prospect
K-Economy
New Economy
Last Update:
10 May, 2000
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| The Edge : March 27, 2000 |
Big Money
The numbers
don’t lie. Or do they?
Here we present two views on why establised brick-and-mortar companies like Sime
Darby should, or should not, rush into the dot.com frenzy. By
Jacqueline Ho |
If you
want to know the extent the New Economy has taken hold, take a look at the performance of
the upstart Nasdaq 100 against the venerable Dow Jones Industrial index.
While the Dow Jones has meandered along, the Nasdaq has rocketed as fund managers, punters
and the men-in-the-street embrace the New Economy.
“From a 100 basis, the Nasdaq has outperformed the Old Economy stocks by 80 per cent,”
declares the manager of a large research advice outfit.
Frightening words. But the numbers don’t lie. Or do they?
The question then: Is there a future for the Old Economy as measured by the Dow Jones? Is
there room enough for the General Motors and Sime Darbys as well as the New Economy
darlings like Cisco and Tom.com?
As far as the markets are concerned, they’ve made their choice.
Says the research manager: “Every fund in the world has to have New Economy in the
basket, a core of technology, media and communications stocks, if they are to perform.
They cannot afford not to.”
In other words, the world is changing.
“Growth is gold to fund managers. They are not interested in value stocks.
Brick-and-mortar stocks are under-performing,” states the research manager.
In such a gung-ho scenario, can the staid giants of Malaysia carry on sitting on their
cash piles?
Or should they follow the example of construction giant Renong Bhd which has been
assiduously reinventing itself as a leader of the New Economy? Among others, it announced
a joint venture with YTL and three other leading Malaysian hotel chains to set up an
e-hotel Internet portal, and a commitment to invest up to RM400 million in an incubator
over three years.
Says a seasoned observer astutely: “Renong’s reincarnation has a lot to do with
necessity. It’s a case of change or sink.” Looking at a morass of group debt of
up to RM20 billion, it must have seemed an easy decision for Renong chief Tan Sri Halim
Saad to reposition debt-laden Time Telecommunications Bhd as Internet company Time dotCom
Bhd.
A flotation is definitely on the cards. The initial public offer (IPO) price has been set
tentatively at RM3.00 for the public portion of 450 million shares as outlined in Time’s
restructuring plan.
If it does as well as Tom.com did on listing, Halim couldn’t be a happier New Economy
leader than Hong Kong billionaire Li Ka-Shing. Nearly half a million Internet-enamoured
Hong Kongers applied for Tom.com’s IPO of 42.8 million shares at a price at HK$1.78
each. It promptly soared upon listing on Hong Kong’s Growth Enterprise Market to
HK$9.70.
At those prices, Tom.com is valued at HK$26.2 billion, which is more than the Bank of East
Asia, a Hong Kong bank founded in 1918.
The Internet service provider and multi-lingual portal has yet to make a buck but it has
already earned Li’s stolid property group Cheung Kong Holdings HK$4.8 billion in
paper profits for its 15 per cent stake.
“Renong is trying to project itself as a Pacific Century CyberWorks (PCCW),”
reckons the research manager. PCCW, the New Economy vehicle of Li’s second son
Richard, gained world-wide attention when he won a pitched battle for Cable & Wireless
HKT.
The question is: Is Renong a PCCW?
Whether or not Renong is a PCCW is moot but the research manager is adamant that it is not
a Cheung Kong. “Cheung Kong has never lost money,” he says.
At a lesser level, a slew of Malaysian companies, listed and unlisted, have jumped onto
the New Economy bandwagon. Since Second Board leadframe manufacturer AKN Technology Bhd
announced it was buying 30 per cent of search engine Cari.com for RM5 million, prices have
escalated even as the spectrum of Web-related businesses have expanded, running the gamut
from portals to incubators to all manner of e-tailing.
For example, the Tan brothers Tan Sri Vincent and Datuk Danny have been in the forefront
of the digital revolution. Elder brother Vincent has long had an interest via mobile phone
operator Mutiara Telecommunications, later renamed Digi Swisscom Bhd and listed. In March,
Tan-controlled listed Dijaya Enterprise Bhd announced a slew of Web purchases including 60
per cent each in three Web sites in on-line education, home shopping and entertainment for
RM35 million, RM16.6 million for 61 per cent in a feng shui site, and US$4.75 million for
50 per cent in a travel site.
Of late, Vincent scored a scoop of sorts, announcing that the world’s largest
Internet venture capital company Softbank Corp’s Hong Kong subsidiary had bought 3
per cent of Digi Swisscom. It has also proposed to rename Digi Swisscom as Digi dotCom Bhd
in its reinvention into Vincent’s vanguard into the New Economy.
Closer to home, three technology-weighted indices were announced within a week of each
other last month. It’s early days to take a measure of the chosen stocks but the
imminent reinstatement of Malaysia into the MSCI (Morgan Stanley Capital International)
index should see movement.
But the research manager is quite clear on one thing. “People will take a punt on the
so-called New Economy. Looking at the Nasdaq, who can resist?”
But he’s also very clear on another thing. It’s not just money. “The New
Economy sucks in a lot of cash before it generates any. Up to 80 per cent of the dotcoms
in the US actually under-performed the market.”
But most importantly, market notwithstanding, technology is here to stay in the very basic
way that business is done.
“Sime has to reinvent itself. If it doesn’t, some one will come along and
swallow it,” he states. |
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