Hi-tech sell-off continues as nerves strike new economy

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The Independent Online

The collapse in the shares of high-technology stocks continued for the fourth consecutive day yesterday as professional investors shifted funds further into traditional "old economy" shares.

In the United States, the old economy-dominated Dow Jones Industrial Average soared by more than 400 points to 10,551 by the time London markets closed. In London the FTSE 100 index closed 110.2 points higher at 6,557.2, with traditional manufacturing stocks in the ascendancy.

Conversely, the techMARK100 index of technology shares fell 6 per cent to 4,783.3. It has now lost 16 per cent of its value this week.

Equity strategists said the correction was long overdue, and warned of worse to come if the slump in internet-related shares sparked a wave of panic selling among small investors.

NatWest Stockbrokers said it is now seeing sellers outnumber buyers by a ratio of two to one among small investors. "Most have been selling technology stocks and returning to stable blue-chip companies," the firm said.

Richard Jeffrey, equity strategist at CCF Charterhouse, said: "It would be a disappointment if small investors get their fingers burned on their first experience on the stock market. But I fear this may be the case. The greatest danger is that when they come to sell their stock there will be no buyer."

Jeremy Batstone of NatWest Stockbrokers said: "I would think the small investor in technology stocks would be starting to feel a bit jittery." He warned of a "dead cat bounce" in technology stocks, with small investors sensing a bargain and being tempted to buy more hi-tech shares. He added: "Then we will see the professional investors selling and there will be a significant fall."

Among the FTSE 100 companies yesterday, the list of the biggest gainers read like a rollcall of traditional industry, with Billiton, Hanson, BAA and Invensys all recording healthy gains.

The biggest falls came among the technology and media companies, with Reuters, Telewest, CMG and BSkyB among the biggest casualties.

Lastminute.com continued to disappoint with a further fall of 25p to 387.5p. The shares in the high profile new issue now stand barely above their issue price of 380p.

Commenting on the sudden reversal of the market trend of the past six months, Steve Russell, equity strategist at HSBC, said: "We think TMT [telecom, media and technology stocks] had got too stretched. The valuations were suggesting they were all going to be winners. We think there will now be a switch to individual stock selection. So some of the new-economy companies will do very well, but some will do very badly." He added that new-economy stocks would continue to suffer over the next few days.

Mr Jeffrey of CCF Charterhouse said: "Many of the technology groups are hopelessly overvalued, and it is no surprise to see a correction. Whether it is a lasting one remains to be seen. But there is fantastic value in the old-economy stocks, with terrific dividend yields."

Private-client stockbrokers have denied they have been hit by a wave of panic selling. However, some investors have been struggling to get through to telephone dealing services.

Barclays Stockbrokers' lines have been overwhelmed in some cases, with calls being greeted by a continuous dialling tone.

The average "wait time" to get through has been up to 10 minutes. "We have been very busy," a spokeswoman for the stockbroker said.