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Buy when the blood flows

When markets crash canny investors seize the opportunity to buy cheap. A few will make huge profits from the turmoil. But it's a risky business. Calling the bottom and selecting recovery stocks is challenging the analysts. No wonder the majority of investors are too terrified to come off the sidelines. Peter Lee talked to strategists about their 1998 plans.

Investors are well and truly spooked by the current financial crisis. Their nervousness, together with Asian inexperience in dealing with meltdowns, led to last month's pulling of a $2 billion bond for Korea Development Bank. During an investors' conference call on December 11, one fund manager asked for a breakdown in the maturity of Korea's short-term debt falling due: what was the mix between one-month, three-month, six-month and 12-month liabilities?

But the two senior Koreans - one from the finance ministry, the other from the Korea Development Bank - answering questions were unable to provide a coherent reply. In desperation one suggested the caller divide the total short-term liabilities by 12 to get a monthly figure. The naivety of the response raised both gasps of horror and laughter among the other fund managers listening in.

Later that day JP Morgan, lead manager for the planned three-year issue, bowed to the inevitable and announced its postponement until sometime this year. Earlier when sounding out investors, JP Morgan had hoped the deal might be completed at a spread of between 350 basis points and 400bp over US treasuries. That would have been quite a step up for a borrower whose bonds had traded at around 80bp over in the first half of last year and which, even in October, could have borrowed at 150bp over.

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