Hong Kong Ain't Sheboygan

THERE'S NOTHING WE IN the news biz like more than a good panic, especially the financial kind. It's exciting, it's fun to watch and it gives us a built-in audience. The latest example is the currency and stock-market problems in Southeast Asia, which caused a drop of more than 300 points in the Dow Jones industrial average Thursday and Friday. This ""Asian flu,'' as it's known, has lots of people running around proclaiming the end of good times in the U.S. economy and stock market.

Calm down, take a few deep breaths. What's going on here is more psychology than economics. The U.S. stock market is understandably skittish over Southeast Asian problems--or any problems--because valuations here are at nosebleed-high levels relative to corporate earnings and assets. But get a grip. A 319-point drop in the Dow is a lot of points. However, it's only 4 percent, no biggie in historical terms.

But isn't Southeast Asia in meltdown? And aren't we in a global economy? Sure, but no matter how interlinked the world's economies have become, financial flu doesn't necessarily infect everyone. The case in point: Japan. The Japanese economy has been in the dumper since 1990, when regulators there punctured the so-called bubble economy that had sent the prices of stocks and land to absurd levels. Gloomsters said at the time that the collapse in Japan, the world's second largest economy, would clobber us here, too. Didn't quite happen, did it? The Nikkei 225, Japan's equivalent of the Dow, is down 55 percent (in yen) from its peak on Dec. 29, 1989. But the U.S. economy has boomed since then. As has the Dow, which has almost tripled.

I don't want to minimize the damage to the people, companies and stock portfolios there in Southeast Asia. Thursday's drop in Hong Kong's Hang Seng index was the equivalent of a 900-point drop on the Dow, which would send lots of investors in search of the nearest open window. But barring some unforeseen event--say, a major bank collapses and drags down banks all over the world--it's hard to see Asia's problems tanking the U.S. Asia is a big place--but so is the U.S. To invert an old cliche, when Southeast Asia gets pneumonia, the U.S. sneezes. Not to be Pollyannaish, but our exports to the infected area amount to only about 1.25 percent of our national output, according to statistics gathered by my NEWSWEEK colleague Michael Meyer. Call it $75 billion a year, a lot of money. But not all that business is going away. And we will still have a multitrillion-dollar economy.

To be sure, some Southeast Asian companies whose domestic markets are shrinking may try to peddle their goods in the U.S., taking advantage of their cheaper currencies. The disaster scenario is that this will throw Americans out of work and force the U.S. to devalue its currency, too. As any student of economic history knows, competitive devaluations in the 1930s helped usher in the Great Depression.

But you can also argue that the turmoil in Southeast Asia is good for the U.S. stock market. Two reasons. First, holding down prices of Asian imports holds down inflation. ""This means a longer period of low-inflation growth in the U.S. well into next year,'' says Desmond Lachman, head of economic research at Salomon Inc. Second, the dicey international financial scene makes it less likely Fed Chairman Alan Greenspan will raise interest rates, lest he endanger the world's financial stability. Higher interest rates hurt stocks and the economy.

Look. Financial crises in ""developing'' countries aren't exactly unknown. Remember Mexico and Brazil? Remember the Third World debt crisis in the 1970s and '80s? Remember previous booms and busts in Asia? This crisis was touched off by Thailand's decision last summer to devalue its currency, the baht. That gave Thai companies an advantage over companies in neighboring countries, which also devalued. The spreading devaluations became known, naturally, as bahtulism. Richard Medley, an international strategist whose Medley Advisors predicted the baht's collapse well in advance, says so much money flooded into countries like Thailand that interest rates fell to almost zero. ""People start to do stupid things with the money,'' he said. ""Why do you build the fourth empty office building on a street corner in Bangkok? Because you can.'' The bubble burst. In a while, he predicts, things will settle down, just as they did a few years ago after European countries devalued.

Please don't consider this a recommendation to buy U.S. stocks. That's your call, based on your circumstances. But don't panic, either. The homilies about the U.S. economy's becoming more globalized are true. But it doesn't mean you should treat all foreign news as a stock tip.