Despite the possibility of a 10% to 15% correction in technology stocks the sector should perform we...
Despite the possibility of a 10% to 15% correction in technology stocks the sector should perform well in 2000, although selectivity will be vital, according to Vladimir Lekowski, fund manager at Sarasin.
Lekowski said: "Stocks seem overbought near term and a mild correction would remove some of the excess valuation. E-business will be a major driver as traditional companies re-engineer themselves and the Y2K cloud dissipates. We expect demand for technology goods to continue to be strong in 2000 with a real possibility of accelerating growth.
"However, selectivity will be crucial in terms of sectors and stocks. We expect a major consolidation in the IT industry and most notably in the internet infrastructure space as companies scramble to establish their positions in this very fast-growing segment.
"In order to outperform, investors will also need to consider small and mid-cap IT stocks, which may offer more value."
In this environment Lekovski favours IT companies that enable the internet. This includes wireless equipment providers with strong wireless data capabilities.
"We also like high-end servers, internet appliances and storage. Consumer electronics companies have a real opportunity in the internet appliance segment and also in the emerging networked home market.
"Another favoured area is analogue and digital semiconductors and memory manufacturers as we believe the industry will witness at least two more years of accelerating growth."
IT services companies with strong e-business and outsourcing capabilities are also interesting as they have more predictable earnings streams and valuations are more reasonable, Lekovski said.
"We also favour selective pure internet plays such as the leading global portals, the vertical portals and the beneficiaries of broadband access. Another positive area for us is networking companies providing both the equipment and the maintenance of data networks. We particularly like fibre-optic technologies."
Lekovski highlights a number of key trends for 2000 and beyond. The transition from real to online will transform the IT industry and prove especially positive for internet infrastructure providers.
Mobile internet access will radically transform the dynamics of the wireless industry, he said. "We will witness a land grab attitude for wireless net users through portal wars. Nokia expects the global number of mobile subscribers to reach one billion by the end of 2002 from around 450 million currently.
"The majority of those are expected to be mobile internet users."
The convergence between computing, media, telecommunications and consumer electronics will intensify and fuel the consolidation process as highlighted by the recent merger between AOL and Time Warner.
Another important trend will be free computing changing the cost dynamics of many industries. Lekovski said. "Free local and long distance voice communications will proliferate as voice becomes just one of many services telecom operators offer. Some telecom operators such as BT have stated that data is already bigger than voice.
"On a broad picture, the internet is reshaping world computing. Lekovski said. "It is creating a new, simpler computing model, driven by the widespread adoption of internet standards and the shift towards internet computing."
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