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| Techs buoyant amidst market maelstrom |
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| Monday, 03 September 2007 | |
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Since the dot.com implosion of 2001, shares in the technology sector have taken a pounding whenever Dr. Doom stalks the world’s equity markets. Not this time, as the August credit crisis has coincided with a resurgence in ICT shares.
While the world’s equity markets were in turmoil during August, our Redux Global ICT 100 Index (‘R-100’) was surging to a new all-time high. This seemed all the more surprising since the R-100 had taken a drubbing in July (for a more detailed examination of the R-100’s performance in July and August, click here). July’s 1.7% fall was the first for the R-100 since the end of February this year and left the Index at its lowest since end-April 2007. It was also only the third fall in the last year (the other was in July 2006). Even with the decline, the Index finished July up 30.6% year-on-year. Despite this positive trending overall, July’s fall might have been more than a blip. Fears that it would stick the growth cycle into reverse were magnified when world markets began to plummet in August. One reason to suggest this is that the R-100 rarely declines in synch across its three component regions: EMEA, the Americas, and Asia. While gains across the regional board have become commonplace (in each month from August 2006 to January 2007, for instance, and again in May 2007, the reverse is a rarer occurrence. You have to go back to February 2006 for the last such three-way fall. The R-100’s August performance can thus be welcomed for nipping the downward trend in the bud. Instead, Asia and the Americas both managed to wipe off July’s losses while Europe made up 85% of the ground it ceded in July. Overall the R-100’s 3.01% gain was the tenth largest monthly rise in the Index’s history. It’s also the fifth largest increase in terms of its underlying market capitalisation value and the largest by that measure since October 2006. The August gain was worth US$135bn with the total Index now worth more than US$4.6trn. While the regions may be performing in concert of late, there are variations. These may provide pointers for the future. In Asia-Pacific, China Mobile’s contribution is remarkable. It has added nearly US$85bn in market cap in the last two months. When supported by major Japanese telcos (as happened in August), the region grows overall; when that doesn’t happen (as in July), it struggles. Going forward, this suggests a fair degree of responsibility on China Mobile’s shoulders. In the Americas, Microsoft has long played a similar bellwether role. The difference here is that if Microsoft falters, as it did in July and August, other big hitters can step up to the plate. These include the usual suspects such as IBM and Intel along with major new economy companies like Google and Apple. In Europe, telcos play the dominant role along with mobile giant Vodafone. The latter dominates the EMEA component of the R-100 along with Deutsche Telekom, France Telecom, BT of the UK and Spain’s Telefónica. All of these are volatile, as are Europe’s large manufacturers. They are more vulnerable to overall market sentiment due to the major role they occupy on their respective domestic bourses. Levers such as these must be watched as the R-100 heads upwards. To use the analogy of a rollercoaster, two recent dips so far this year must be offset by the mounting trepidation as the we go higher and higher up the ride. Jim Chalmers |
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