Technology, as I have mentioned before, cannot be ignored

Holidays do not always put me in a good mood, but I returned from my brief sojourn feeling generally better about the market. And why not? The BBC World Service had kept me up to date with the rebound of technology shares. How sad, then, that the first thing that should happen on my return should be some TMT (telecoms, media, technology) profit taking.

Holidays do not always put me in a good mood, but I returned from my brief sojourn feeling generally better about the market. And why not? The BBC World Service had kept me up to date with the rebound of technology shares. How sad, then, that the first thing that should happen on my return should be some TMT (telecoms, media, technology) profit taking.

The rebound in the sector had been dramatic during recent weeks, with the FTSE 100 Index being re-jigged yet again to the benefit of technology and media. Out go such stalwarts as Scottish & Newcastle, Hanson, Rolls Royce, Associated British Foods and Corus (British Steel). In come Dimension Data, Spirent, Granada Media, Electrocomponents and Baltimore Technologies.

But it is the yo-yo effect of these changes that give greatest cause for concern. Scottish & Newcastle and Associated British Foods were victim to the last but one shake-out in the Index when, in total, nine old economy stocks were replaced by TMT newcomers - ten if you count Natwest Bank, which was also replaced by a new economy company.

Among the companies that entered then was Baltimore, a relatively new enterprise in encryption techniques. Three months later it was about turn, with Scottish & Newcastle re-entering and Baltimore becoming a victim of the slide in technology shares that started in March. Here we are, three months later, with the positions being reversed yet again.

All five new entrants to the Index are in technology and media, but Baltimore is the only re-entry. Dimension Data, a South African software house, joins a band of companies that have forsaken Johannesburg to maintain their primary listing in London.

As with Granada Media, a consequence of the merger and then de-merger between Granada and Compass, Di-Data (as it is known in the Cape) did not exist when the latest FTSE re-shuffle took place and the company is of such a size that inclusion was inevitable. Spirent and Electrocomponents, the other two entrants, had strong demand for their shares in recent weeks.

You can understand the frustration that some managing directors must feel when they see their shares bob in and out of an Index as prestigious as the FTSE 100. Aside from anything else, it creates natural buying and selling pressures. Managers of indexed funds had to sell Scottish & Newcastle earlier this year when it dropped out, only to buy again at the beginning of June. Now they are selling shares again.

For investors with a more fundamental approach, the resurgence of the TMT sector - or to be more truthful, of technology and media since telecoms remains under something of a cloud - shows there is always an over reaction to any market reassessment. Perhaps we are now seeing a fairer valuation of technology stocks. I hope so. It is still the fastest growing business sector in world markets. Technology, as I have mentioned before, cannot be ignored.

Brian Tora is Chairman of the Greig Middleton Asset Allocation Committee

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