Internet companies face turmoil and difficult times for at least another six months, according to analysts with Merrill Lynch.
HONG KONG (SCMP.com) - At a briefing on the outlook for the new economy in Asia, researchers with the financial management and advisory company said they were still concerned about what lies ahead, even after months of upset in the markets.
"The dot-com phenomenon has evaporated," said head of Internet research Matei Mihalca. "It will take until the second quarter of 2001 before things turn around."
Mihalca said the downturn would continue as the US economy cools off and the market's distaste for technology firms spills over into Asia. He predicted that dot-coms would continue to crash as their money runs out and no one is willing to give them further funding.
The analysts identified a number of companies, including prominent Internet portals Sohu and Sina, that they predicted will face "financial difficulties" in the coming months as they burn through their limited cash resources.
But Merrill Lynch is still bullish overall on the future of new economy companies. After a period of consolidation and weeding out the weak players, they believe stronger firms will emerge.
"All the fundamentals are still very strong, but there is a war of attrition going on," said Mihalca. "Our clients are beginning to think there are some diamonds amid the rubble."
Internet analyst David Soh said that even as the dot-coms are failing, there would continue to be rapid growth in the number of people going online and in the volume of e-commerce.
He said that established companies using the Internet as a tool to become more efficient would flourish, while pure dot-coms without a physical presence would fail.
Meanwhile, Merrill Lynch believes Hong Kong is "one of the most exciting Internet markets in Asia". Analysts said Internet development has been rapid in Hong Kong, spurred by an open and competitive telecommunications environment and good penetration of personal computers.
But they also said the Hong Kong market is "noisy", and that it may be too early to tell which companies will survive the continuing shake-out of the Internet sector.
In a country report on Hong Kong, Merrill Lynch researchers said companies have wrongly decided to concentrate on business-to-consumer e-commerce instead of trying to capitalise on the success of the existing business-to-business economy.
"In our opinion, the true opportunity in Hong Kong ... may lie in building on the traditional trading and logistics expertise," the report states. "However, we've seen little of this so far."
