One year ago, in January 1999, the technology sector accounted for 1% of the FTSE World Europe Index...
One year ago, in January 1999, the technology sector accounted for 1% of the FTSE World Europe Index. At the end of February ???(this, last?) it was 10%. Telecoms then accounted for 5%, and in February they were 17%.
The pace of technological change is so fast, that this in itself provides a very good reason why we see further upside in markets. Estimates for the number of mobile phones in world-wide circulation are constantly having to be revised upwards. This benefits two of Europe's largest companies, Nokia and Ericsson.
In addition, the introduction of the third generation mobile will undoubtedly drive usage up further.
Ericsson will manufacture the equipment for 84 of the consortiums currently bidding for licences. Ericsson's growth for the next few years appears assured - undoubtedly, though, they face a challenge in delivering the growth.
Corporate activity will continue to gather speed. Companies believe they need scale in order to compete - in order to afford the technological investment to carry on their business in the case of the banks, or negotiate the cheapest price from their suppliers in the case of the retailers, or, as pharmaceutical companies, to be able to afford the huge investment required in research and development.
We are now also seeing hostile activity involving bigger companies, too, as in the case of Vodafone's bid for Mannesmann or Boskalis' bid in the Netherlands.
This opens up more combinations of potential deals. Indeed, the increasingly favourable fiscal regime - especially in Germany - is encouraging banks in particular to divest non-core activities.
One impact of the Euro's introduction is that a European investor no longer has currency risk when he invests in Europe. We will undoubtedly see the trend continue whereby European investors will look at investing in Euroland as no riskier than in their home market. This means that companies will increasingly be compared with their peers on a pan-European basis, rather than just in their home market.
The last six months have certainly been an extraordinary time in investment terms. Technology and telecommunications now make up a far greater part of European stock indices and it is changes here that will drive some company share prices in these areas higher still.
Going forward, the market will be more discerning in the valuations it gives companies in these sectors. Some companies will be able to capitalise on the new growth opportunities, while others will not. Indeed, some of the most successful will undoubtedly use that highly rated paper to make strategic acquisitions.
Juliet Cohn is director at Dresdner RCM Global Investors
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