2001 Financial Markets Preview: Job 1: Keep the investors

Investors tend to focus on stock prices to measure the health of companies and the market in general. But volume also is important because of its effect on the ability of investors to get in and out of stocks.

One of the most notable changes in the biotech group in recent years is its transformation from a thinly traded sector with limited liquidity into one with volumes high enough to enable larger investors to trade in the group. Going into 2001, a key issue is whether the weakening both in NASDAQ as a whole and biotech specifically could create a liquidity crunch that could drive non-core buyers from the space.

While there is consensus that the overall market will continue to cool, biotech market watchers don't expect that a downturn - even a protracted one - would send the industry back to the minuscule trading volumes of the early 1990s. Bankers argue that biotech is sufficiently well funded to weather the storm, and that continued fundamental progress will drive investors to the sector. Additionally, they expect that biotech will garner more attention as it remains one of the last growth sectors standing after the demise of the dot.coms and slowing growth in areas such as telecommunications.

"In the '90s the economy was driven by the PC, wireless and the internet, and this decade will be driven by genomics, intelligent drug discovery, personalized medicine and molecular biology. Investors are beginning to realize that," said Robertson Stephens banker Mark Simon.

Simon believes biotech has won back some of the investors it lost through the 1990s, when valuations were ahead of fundamentals. "In '91, the industry was up 110 percent and stocks were ahead of themselves. Those investors that got out of the sector back then started to come back to the sector in late '99 because the fundamentals had played catch-up," he said.

Indeed, J.P. Morgan

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