Banks are the most vulnerable sector to millennium bug problems which has prompted Templeton's Mark ...
Banks are the most vulnerable sector to millennium bug problems which has prompted Templeton's Mark Mobius to reduce his exposure to financials.
As well as being largely dependent on computers, the network infrastructure evident within banks means a bank that is not yet year 2000 compliant
in a smaller country could have a domino effect that would impact on larger, more compliant banks.
Additionally, many developing countries have been preoccupied with political instability or economic problems, possibly leaving year 2000 compliance low on the priority list. This is a concern because banks are an integral part of functioning economies and any problems would not be felt in isolation.
Mobius says his biggest concern with non-2000 compliance in developing markets is how the banking sector will cope. As a result, he has lowered asset allocation toward banks from 18% to 14% in his portfolios.
John Hayter, senior Far East fund manger at Pavilion, agrees the banking sector is most susceptible to the year 2000 problem, along with airlines.
He says: 'As well as relying heavily on computers, banks are a clearing house for trade finance throughout the whole region. Therefore if a smaller country is not compliant, this will affect banks in bigger countries which in turn could have a major rippling effect throughout the whole region.'
Hayter says the retail and manufacturing sectors also have reason to be concerned as they relied heavily on network suppliers. Countries most vulnerable are Thailand, Malaysia, India, Pakistan, the Philippines and Indonesia. Pavilion has no exposure to these areas. Pavilion's Far East funds will take a closer look and country and stock selection in the late third and fourth quarters of 1999.
Radhika Ajmera, emerging markets manager at Aberdeen, agrees banks are the most susceptible sector and the consequences of not being compliant would have major ramifications.
She says: 'Utilities are also something to be looked out for. A certain company could be 100% compliant but if there is, say, no electricity, then that company is going to have big problems.'
She says Aberdeen Asset Managers is not and will not be reweighting its emerging market portfolio in anticipation of non-year 2000 compliance.
Ajmera adds: 'There may be some hiccups along the way with non-year 2000 compliance but this is not going to affect our portfolio, we are long-term investors and we will sit it out.'
Wendy Hay, head of Asia Pacific and emerging markets at Standard Life, says: 'As a result of the economic crisis, year 2000 has not been a proper priority for many central banks and Governments.'
Garry McKenzie, director South East Asia equities at Clerical Medical is also concerned about developing countries.
He says: 'The risks increase further down the per capita GDP scale. Reducing our exposure in some countries such as Indonesia is certainly an issue. But there is the question of whether year 2000 is the number one risk in these countries anyway. It becomes the biggest problem for the US, UK and continental Europe but for emerging markets it is just another risk.'
Mobius says although he is nervous about the banking sector, emerging market companies are prepared for crisis because they face it every day.
He says: 'For example, power systems in emerging markets are not reliable, black outs and brown outs are common. So companies are ready for such emergencies and have procedures and methods of dealing with them. Nothing is taken for granted. Computerisation in emerging markets is not as pervasive as in developed countries.'
What made financial headlines over the weekend?
Pensions neglect to be criminal offence
All-day event on 24 April
Consequences could be more severe than in stress tests
AFH has six segregated mandate funds