US Sub-Prime Woes Just A Correction, Experts Say

Sep 11, 2007

THE sub-prime mortgage crisis in the United States that battered the world's bourses recently is just a correction that has a few months left, at most.

So say two financial experts who are in town for the Forbes Global CEO Conference taking place this week.

Best-selling author and Forbes magazine portfolio strategy columnist Ken Fisher said at a press conference yesterday that he expects a resurgence in takeovers and mergers-and-acquisition activities as early as next month.

He said: 'What people are not talking about at the moment is the fact that earnings yields are actually higher than bond yields.'

This, coupled with average corporate borrowing rates that are lower now than three months ago in all segments except for 'junk' firms, meant that such firms will become prime targets for takeovers by other companies, he added.

'People believe there is a credit crunch, but we are actually seeing cash- hoarding in anticipation of a real crunch.

'I believe we will see the resumption of a bull market in a few months, with heightened takeover activity as early as Halloween.'

Nobel laureate Professor Michael Spence backed Mr Fisher's optimism. A dramatic impact from the sub-prime crisis on the global economy is unlikely, he said.

He cautioned, however, that while the sub- prime crisis was caused by 'irresponsible lending abetted by liquidity flows', there are also 'underlying structural problems' that go beyond it.

These structural issues include information gaps in a complicated global economic system where 'people don't really know who is at risk'.

NICHOLAS FANG, GRACE NG