The price of shares in technology companies tumbled on stock markets around the globe yesterday, in a dramatic reversal of investors' recent enthusiasm for new economy stocks and disdain for the old economy. Asian and European markets dived following a near-4 per cent fall in the high-profile Nasdaq index in the US on Wednesday.
Yesterday the Nasdaq composite index declined sharply for the fourth successive day, losing 186.69 or 4 per cent to close at 4,457.98. But gains in old economy stocks left the Dow Jones Industrials index little changed, down just 0.4 per cent yesterday. The Nasdaq has fallen more than 11 per cent from its closing high of 5,048 on 10 March, while the Dow has climbed 10 per cent over the same period.
In London the FTSE-100 index ended down nearly 154 points at 6,445.2, while the techMARK index dived 310 points to 4,402.52. The Paris, Frankfurt and Milan stock markets each also fell more than 2 per cent. Paris's Nouveau Marche shed nearly 11 per cent, and its German counterpart, the Neuer Markt, 7 per cent.
Yesterday's losses in London affected hi-tech stocks ranging from Vodafone and Psion to the biotech company Celltech and the computer services group Logica. Shares in the recently floated lastminute.com lost 32.5p to end at 255p, and have now lost a third of their value since floating at 380p.
However, 3i, the venture capital group, yesterday announced the launch of a £400m quoted European technology fund, due to list on the London Stock Exchange on 10 April. Institutional investors have already signed up for £380m of the total. Paul Waller, fund management director for 3i, said: "There is clearly a lot of volatility in technology stocks which is a cause for concern. But we would rather be buying at current levels than the ones we saw a few weeks ago."
Mr Gardiner said investors would become more discriminating in their selection of hi-tech shares in future. "There are genuinely a lot of good new technology stories. The closer you get to the internet and the dot.coms, the hazier the earnings outlook," he said.
The dramatic declines follow warnings about high valuations from leading Wall Street analysts earlier in the week. Abby Joseph Cohen of Goldman Sachs recommended a reduction in exposure to equities, and a switch out of technology and into old economy staples.
"Technology shares were given the respect they deserve over the past 18 months and are no longer undervalued," she wrote in her latest circular. She noted it was the first time in a decade she did not recommend being overweight in technology.
William McDonough, president of the New York Federal Reserve Bank, yesterday dismissed fears that recent stock-market developments marked the bursting of a speculative bubble. "I am quite sure we don't have a bubble economy in the United States," he said.
Mr McDonough said there had been a rolling correction over the past 18 months in old economy stocks, and while valuations were historically high they were not "completely insane". "We could probably have a fairly significant correction in the market," he said. But he added: "It would have to be much larger than most people think, to have any likelihood of driving the US economy into a recession."
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