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APRIL 28, 2000 VOL. 26 NO. 16 | SEARCH ASIAWEEK

E-VESTING
Picking Up the Pieces
As the dotcom bubble implodes, investors should look back at the lessons from the 1850s California gold rush
By STEPHEN VINES

Nasdaq corrected on April 14, sloughing off a record 355 points in one day, before rebounding the following Monday. Hong Kong's vaunted Net play, Pacific Century CyberWorks, sank 14% April 17, down more than half from its record high in March. The Asiaweek/CNN Asian Internet Index has fallen some 20% since January. It may just be that we are finally seeing the implosion of the dotcom bubble.

Investors are naturally nervous at times likes these and want to see what may be salvaged from the debris. History does show us that even the most devastating collapse of markets and individual speculative bubbles does not necessarily mean bad news for all the companies associated with the collapse. It is in this spirit that we might care to revisit the great Californian gold rush a century and a half ago. The period contains strong hints for investors seeking the solid long-term returns of the technology sector without the radical mood-swings of Internet stocks.

Consider this: In 1850s California, gold-mining companies proliferated and many of their proprietors made a great deal of money quickly. How many mining companies survived much longer after the fields played out? Exactly none. However, two companies established during the gold rush not only prospered, but are still around today: Wells Fargo & Co., which banked the gold seeker's cash, and Levi Strauss & Co., which supplied the miners with trousers.

The observation has been made many times before, but it bears repeating: During times of commercial and industrial upheaval, the companies with staying power are generally those offering services to the speculators, rather than the speculators themselves. Asian investors looking beyond the obvious and the overvalued -- Pacific Century CyberWorks and Softbank, for example -- can find companies within the region that are benefiting from the shift to the Information Economy, without being on the bleeding edge. And these companies have track records and earnings.

The problem for investors in Asian markets is the limited choice of listed companies that directly service pure dotcoms. There are, for example, few equivalents of UPS or Fedex from the U.S., which have cashed in on the boom in electronic commerce because they are well positioned to deliver goods ordered over the Internet. However, Japan is home to some stocks that fit the bill. Nippon Express, the delivery service, for one, has plenty of room for growth and is well placed for deliveries of e-commerce products.

Japanese companies that manufacture communications and electrical equipment have seen a sharp rise in orders since January. The country's Economic Planning Agency expects capital spending on information-technology gear to remain strong at least through October. A good way to participate in the growth is to buy companies making communications hardware such as optical-fiber cables. Furukawa Electric was a stellar performer in the sector last year, with earning per share rising by an estimated 600%, some of which was attributable to a U.S. acquisition. Another pick is Sumitomo Electric, which is up there at the high end of the optical-fiber feeding chain. It makes increasingly sophisticated telecommunications products for the international market and is also an industry leader at home.

For the most part, India's high-technology stocks are risky due to their inflated valuations. But telecommunications equipment manufacturer Finolex Cables represents a good long-term growth play in a market where phone service is remarkably sparse and consumer and business demand is booming.

The price of shares in Taiwan's Systex Corp. has run up due largely to the company's holdings in Internet portal Kimo.com. What makes the company a good longer-term proposition is its market-leading position in computer systems integration for the financial services industry. Systex has a strong client base among banks and stock brokerage firms that are establishing an online presence.

Choosing companies that are profiting directly from the proliferation of dotcom companies isn't easy. A lot of new players with short operating histories are crowding the field. Hong Kong, where the Internet boom has been deafening, is home to a company called Total e-comm that could emerge as a leading provider of services, such as handling payments, order processing and arranging deliveries for e-commerce companies.

Total e-comm, which is planning to go public, is run by Phillip Kelly, a former chief of Dell Computer's Asia-Pacific operations. Pacific Century CyberWorks is a stakeholder. Yes, Total e-comm lacks a track record and proven ability to turn a profit. But the company is in essence supplying pants to the gold miners. And that means, in the long run, that its investors are not as likely to lose theirs.

Write to Asiaweek at mail@web.asiaweek.com

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