By Mohamed Ali Bernat The technology market is beginning to show some signs of greater cyclicality,...
By Mohamed Ali Bernat
The technology market is beginning to show some signs of greater cyclicality, according to Aberdeen.
Ed Protheroe, a fund manager on Aberdeen's pan-European growth team who works on the Global Technology unit trust, believes the web entablement element of the tech market has remained strong and is beginning to witness seasonality in its movements, something that has not been seen before.
He said: "It is a sign that these businesses are beginning to adapt to more mature business models, albeit at higher growth rates."
Protheroe said the technology sector was still less affected by interest rate rises than other markets and added capital spending on technology would continue apace.
"If you map a pure tech index like the American PSE over a 10-15 year period and compare its performance to the loosening or tightening of monetary policy, you will find no correlation," he said.
"There are some cycles in the technology sector. For example, the semiconductor cycle is normally based around the supply side with the typical rules of economics applying.
"Demand rises, they enjoy creaming off premiums as the price goes up, then they start expanding to meet demand and end up with over-capacity just when demand is falling and have to pare back their operations. But these cycles are not directly related with, say, the actions of a European Central Bank."
One sector that is more closely related to GDP cycles is IT services, which normally falls if GDP is weakening, according to Protheroe. He added: "It has been a tough year for IT services but there are some reasonable companies to start looking at, especially those involved in the telecoms market like CMG and Logica, which provide billing solutions.
"The market is looking for IT service companies to start bringing projects back on line going into 2001 and the sector is making positive noises."
Protheroe said the IT sector had enjoyed a very good period in 1999 as companies rushed to get their systems up to standard, but this was followed by a period of consolidation that has lasted longer than the market anticipated.
Overall Aberdeen is still confident that telecom equipment companies will show strong growth rates for the coming year.
He said: "We have very strong weightings in the telecom infrastructure arena and are looking to buy attractive, healthy stocks on days when the stock market has dipped."
Protheroe added the market was still brutal after the corrections in March and April, as well as being fairly illiquid as buyers are unwilling to re-enter until third quarter results are issued.
He said: "People are saying they want to wait until they get the third quarter figures even if they have to pay a 5% premium. They are thinking that, if figures disappoint, they may get those same stocks for a 20% discount.
"Companies start issuing their results from the end of October but there are rumours coming out all the time that can be enough to see an intra-day swing of 10% in stocks."
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