Many technology fund managers are bracing themselves for a leg down in the technology market in the ...
Many technology fund managers are bracing themselves for a leg down in the technology market in the early part of 2002 as stocks have been bid up too high.
Despite that, some are predicting outperformance for tech, media and telecoms against the wider market in the expected cyclical upswing as global growth re-emerges in mid 2002.
Jackie Bowie, technology fund manager at Aegon, believes that the volatility of the past two years will give over to smoother sailing.
Bowie says: 'The worst of the volatility of tech, media and telecoms is likely now behind us. However, the sector is likely to be choppy as we move into 2002. This is mainly a result of the stocks being bid up so much as we finished off 2001. Many are pricing in a perfect economic and profit recovery, and although there is likely to be improvement on 2001, the timing and magnitude of the recovery is still unclear.'
Credit Suisse's Scott Lewis agrees that while the lows of 21 September won't be repeated the market is likely to dip in the first quarter.
Lewis says: 'Tech and media will move ahead simply based on the prospects for an improved economy. Some areas of tech, notably telecom equipment for carriers, will have a longer road to recovery given the excesses in spending in that area in the late 90s.'
Bowie agrees, saying that only if telecom companies can get their balance sheets in order this year will the sector move forward.
Sentiment remains important for biotechnology, Bowie notes. A greater return in investor appetite for risk will give them strong support. She says: 'For all four sectors, the key is selective stockpicking. The darlings of the past few years are unlikely to be the stars of this year. In the scenario of a gradual economic recovery in the second half of 2002, we would expect technology to outperform the market generally. There are many high quality companies to own and whose business models are strong enough to survive the downturn.'
At year end 2002, she expects Nasdaq to be up to 2,450, a level that John Pullar-Strecker, head of technology at Aberdeen, would be disappointed not to see achieved.
Pullar-Strecker says that for the technology sector to move ahead, it is a pre-requisite that consumer spending in the US remains relatively stable.
If this continues, he adds, then the inventory reductions that have started in earnest should continue throughout the technology sector.
He says: 'For technology to move ahead there needs to be a recovery in the US economy which will feed through to the global economy. Inventories appear to be under control, there has been heavy restructuring within the sector and companies are generally in much better shape now than they have been at any point in the past 12 months.'
Despite that, Pullar-Strecker expects global economic prospects to improve in the second half of 2002. His most favoured sector within technology is software, which should benefit most from an upturn in corporate capital spending.
Cyclical upswing to lift TMT.
Volatility has hit a peak.
Sector contains many high quality companies.
No new secular growth trend.
Early year market falls expected.
2001 year-end valuations high.
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