Recent months have seen less correlation between technolgy sectors in the world market, says Steve D...
Recent months have seen less correlation between technolgy sectors in the world market, says Steve Danby, global theme strategist at Henderson. He says: 'We usually see trends between the sectors, but there has been some diversion between technology, telecoms and various cyclical sectors.'
In today's borderless market, a global approach to stock-picking is essential, says Neil Rogan, global focus fund manager at Gartmore. This allows investors to identify sector leaders through analysis of industry and franchise strengths in a global context.
'This approach highlights the differences in industry strengths worldwide,' he says. 'Earnings growth in the mobile telecoms industry is under great pressure because of the huge cost of third-generation licences and network upgrading. But new subscriber growth varies across the world. NTT DoCoMo is one of the strongest, and subscriptions to its i-mode services are ahead of projections.'
Within the pharmaceutical and healthcare sectors, Rogan likes US firms, such as Pfizer and American Home Products, that reflect the industry's positive demographics. He believes the US administration is likely to be less stringent on price controls than its predecessor.
'In terms of franchise, new anti-cholesterol treatment guidelines from the National Institute of Health have boosted the US market by about 20 million people, and one of Pfizer's main drugs, Lipitor, already has the largest share,' he adds.
Danby remains positive on cyclical sectors as he believes defensive stocks tend to be expensive and, with the anticipation of US recovery, the markets are reacting positively to cyclical stocks.
Peter Oppenheimer, chief investment strategist at HSBC, shares Danby's view. 'As we have seen the downfall of technology stocks, anything not in that sector has outperformed,' he says.
'Technology used to make up 30%-40% of the market, but since the crisis, there has been a reallocation. Investors are moving to consumer cyclical stocks because consumer demand for goods has held up well.'
Although the markets have started to price in the anticipated turnaround of the US economy, Danby warns the most likely recovery scenario is U-shaped, meaning the slowdown will drag on longer than expected. He says: 'Stocks outperform for two months and then revert back to a low ' a typical boom and bust cycle.'
In such a market, investors are again examining the value of stocks and buying growth stocks that are likely to pick up when markets recover, says Richard Urwin, head of strategic research at Gartmore. He believes growth will be slow throughout the recovery period.
'Asia is not looking good and the weakness in Japan will feed through to the rest of the region,' he says. 'The UK is being exacerbated by the strong pound but is holding up because of strong consumer spending.'
Urwin points out that, while the global market is decelerating, some emerging markets are faring well.
• Positive demographics supporting healthcare
• Consumer cyclicals showing strength
• Sector reallocation after tech crisis.
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