Forum Archive Index - April 2000

["G P Thompson" <gp.thompson@bitworks.co.nz>]

This article in the Herald makes interesting reading for those who live Sth of the Bombay hills.

High-tech stocks pounded

07.04.2000 - By ROB O'NEILL

After weeks of market hesitancy, the US high-tech boom has come to a grinding halt, knocking local technology stocks for six.

Advantage Group, which held up well through the first quarter, reached a low of $4.80 yesterday, down 15c for the day and from $5.45 at Friday's close.

The US Nasdaq and local D.F. Mainland Technology indexes have levelled off since their rapid gains in November and December. This week, as a result of market softness, the Microsoft anti-trust decision and warnings from prominent US e-retailers, most offshore high-techs plummeted.

Analysts and investment managers say the market is sorting the e-wheat from the e-chaff.

Simon Botherway, investment manager at Spicers Portfolio Management, said the bubble had burst and the fallout would be ongoing.

He said there was a lot of "blue sky" priced into local technology stocks.

"This isn't a correction in a bull market any more," he told the Business Herald. "What we have seen is a substantial and significant break downward."

D.F. Mainland head of research Bruce McKay said it was easy to talk about a bubble. The Microsoft decision was the catalyst that created the shake-out, but companies and investors would pick themselves up and carry on.

Despite the falls, the D.F. Mainland index was still up 3.1 per cent from the last trading day of 1999.

"Advantage is traditionally the stock that benefits or suffers the most," said Mr McKay. "The New Zealand stocks have followed the US, but the gouging hasn't been as severe, with the exception of Advantage."

Strathmore Group was down to 38c from 44c on Friday, IT Capital to 47c from 54c and E-Phone to 53c from 57c.

New listing Beauty Direct has fallen steadily since its debut at 26c on Wednesday last week to reach 17c yesterday.

Spectrum has bucked the trend, lifting 5c to 19.5c yesterday, up from 18c at close last Friday after a troubled week.

Mr Botherway said warnings from several US e-retailers added to problems in that already-soft sector, though good stocks remained.

Market valuations would now reflect a degree of differentiation between stocks that had an ability to generate cash flows in the long-term and those that did not.

That view was echoed by US fund manager Keith Sabol after the Nasdaq lost 575 points in one session before recovering.

Mr Sabol's Federated Aggressive Growth Fund flew high in 1999, gaining 112 per cent. This year it has declined 29 per cent. He said the shake-out between higher and lower-quality names should surprise no one, and predicted "ongoing sloppiness."

Mr Botherway said companies that had to come back to the market to raise more cash would struggle. He also signalled that a return to valuation fundamentals was overdue.

"There is no new valuation paradigm. The value of a stock is the present value of future cashflow and there isn't any other way to value a stock in the long run."