The September 11th attack
Some Hawai'i stocks may suffer when market reopens

By John Duchemin
Advertiser Staff Writer

When U.S. financial markets reopen after their longest unexpected break in history, investors will face an environment completely changed from Monday.

Not only have airlines, travel companies, brokerages and other companies just suffered a huge financial shock, but the global political and economic environment may have been transformed forever.

In Hawai'i, public companies have been outperforming the overall market for more than a year. As the Nasdaq, Dow and S&P 500 have sunk, many of the dozen or so stocks here have done far better.

But the short- and long-term changes from last week's events will inevitably affect Hawai'i stocks. Some could be badly battered, while others may emerge relatively unscathed. Some stocks may even benefit.

A look at some of the important sectors that include Hawai'i's public companies:

Travel, technology

These sectors could be heaviest hit. Airlines are staring at huge losses; ticket companies and hotels face reservation cancellations and postponements from consumers more reluctant now to fly, or more prone to stay closer to homes and families.

As a result, airline stocks — including that for Honolulu-based carrier Hawaiian Airlines — are expected to get "hit hard" when markets reopen, said Peter Jacobs, transportation analyst with Seattle brokerage Ragen McKenzie.

"I'd expect them to be down several times what the market is down, and that includes Hawaiian," he said.

The slump could last months if analysts' predictions of a backlash against air travel prove correct.

"I think this is going to be a repeat of the Gulf War phenomenon, only magnified several times," said Richard Aboulafia, an aviation analyst for the Teal Group.

Fear of terrorist acts after the Gulf War made travelers leery of flying. That and the global recession of the early 1990s resulted in enormous losses for airlines.

The technology sector could also suffer. Volatile stocks can fare poorly in uncertain times as investors flee to "safe havens." Analysts say biotech, for instance, is hardly seen as safe despite long-run potential.

"Biotech is synonymous with aggressive growth, high-potential growth and high risk," said David Saks, chief investment officer of Saks Medscience Fund. "While the future looks bright for biotech, money will be reluctant to go there."

Not all technology stocks are considered at risk. Shares of drug and medical-device makers, widely considered a dependable investment, may be a refuge when the U.S. market reopens this week after Tuesday's terrorist attacks, analysts said.

Pfizer Inc., Merck & Co., Johnson & Johnson and other big drugmakers are often seen as a bulwark against adversity because their profits tend to be steady regardless of the direction of the broader economy.

"When you have uncertainty, that hurts the market; people will go to where the certainty is," Saks said. "Health care will probably be one area where people will feel is the least adversely affected in terms of economic impact."

Hawai'i public companies in these sectors: Hawaiian Airlines, Cheap Tickets, Aquasearch, Cyanotech

Banking, utility, shipping, real estate, food products

These traditional industries have tended to be less volatile than the wildly swinging tech stocks. Hawai'i bank stocks benefited mightily in 2000 and early 2001 as earnings rose and investors sought safe ground.

As a result, these and other stocks may not be as impacted, because their businesses were largely unaffected by the terrorist attack.

The week's events had little direct impact on ocean-bound cargo companies. Alexander & Baldwin and other shipping conglomerates may very well outperform the market — at least initially, said Ragen McKenzie's Jacobs.

"Alexander & Baldwin has the Matson line, and I wouldn't expect that to be materially affected by what happened," he said.

Hawai'i public companies in these sectors: BancWest, CB Bancshares, Central Pacific Bank, Hawaiian Electric Industries, Pacific Century Financial, Alexander & Baldwin, Maui Land & Pineapple, ML Macadamia Orchards

Advertiser news services contributed to this report.