Looking out to next year, technology will begin to enter a period of stabilisation, says Tim Dainton...
Looking out to next year, technology will begin to enter a period of stabilisation, says Tim Dainton, manager of the Gartmore TechTornado Fund. However, he warns investors to be mindful that many US companies will report poor news in the third quarter of this year, which may cause sector volatility.
Dainton says that once the third quarter is out of the way, the sector may see some stability and green shoots of recovery in the mobile handsets sector, which may result in a return of investor confidence in technology and upward momentum in share prices.
Dainton advises investors to be selective in the companies they decide to back, as he says that over the next 12 months technology remains not the best area to be investing in.
Since the beginning of January 2000 to 30 July 2001, the Techmark 100 has declined 58%, falling from approximately 3,600 to 1,550. Since the beginning of January 2001 to July 2001, it has declined approximately 37%, falling from 2,470 to 1,550.
Dainton says: 'What many investors have been too slow to realise is that there are many areas of technology that are now in recession, such as software and hardware. Many investors were talking about a 'V' shaped recovery, which now seems far-fetched.'
He says the first area to go into the technology downturn was mobile handsets and it is the first to show signs of recovery.
The optical network sector is not likely to show signs of recovery in the near term, he says, because it depends on telecom operators, and until the finances of those companies are sured up, it is unlikely to recover in the near term.
Gareth Rudd, manager of the Edinburgh Technology Fund, says the market is myopic at present, looking on a six-month to a year view at best, and not accrediting any value in companies beyond that window.
Rudd says: 'We believe you have to value companies on their fundamentals and look beyond the short term for them to deliver profits. You need to see beyond the fact they are in negative territory at the moment.'
Fundamental analysis over the long term shows that there are still good opportunities in the market looking on a very stock-specific basis, according to Rudd, who notes the market is currently in a holding period in which companies are re-focusing their spending.
Rudd says he does not expect newsflow to greatly improve in the short term, and says the Techmark 100 will continue to tread water. He says in the US there are signs beginning to emerge that the larger companies are getting more comfortable with the reduced forecasts.
Rudd says: 'The situation is very fragile and sentiment can be damaged very easily by bad newsflow by any company on any day. We are still at a very early stage in the technology revolution. Corporate news does not turn on a six-pence, but when the market looks beyond its myopic view, companies will be re-rated fairly sharply, and towards the end of the year, we are looking for selectively improved newsflow.'
• Stock specific long term option good.
• Selectively improved newsflow in Q4.
• Mobile handset sector to recover.
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