IT stocks plunge further

By Batuk Gathani

BRUSSELS, APRIL 5. For the second day on Wednesday, Information Technology stocks in Europe suffered wild swings in the wake of the United States court ruling that the world's largest software company, ``Microsoft'' has violated anti-trust laws. The ruling has triggered fears in the markets that the break-up of the company is probable, if not inevitable.

European investors are in a quandary as they weigh the options of pulling out of the ``new economy'' stocks and moving to the conventional ``old'' economy. The current debate among the investors is whether the present turmoil in the ``new economy'' companies represents the widely anticipated ``correction'' in that overvalued sector or this is the beginning of the end of the great bull run of the 1990's. It remains to be seen if the markets on both sides of the Atlantic can weather the tremors in the IT sector even as conventional stocks of the banking, manufacturing and trading sectors are staging a modest recovery.

Some investors have even sought shelter in government bonds. Analysts point out that the European IT stock valuations have been higher than that in the U.S. and hence, its effect on the bearish market raises many imponderables about the future course of interest rates in the background of inflationary

pressures.

The current conclusion in markets is that the European Central Bank, which monitors 11 Euro-zone economies, may raise interest rates by nearly 1 per cent by the end of the year. The Bank of England may also raise interest rates as the British manufacturing industry bitterly complains about an overvalued pound sterling, which has eroded the competitiveness of British products. The German automobile giant BMW last month abandoned its British subsidiary on the ground that the pound had appreciated by 25 per cent since the company set up shop in Britain. This move may cost thousands of British jobs.

All this has an unsettling effect on the markets as IT stocks in major European markets take a beating.

For example, stocks of companies engaged in finance, pharmaceutical, chemicals and conventional manufacturing are displaying some vigour as ``old economy'' stocks become the beneficiaries of the current turmoil. The European Union stock markets have risen despite the so-called ``new economy'' slump. According to reports in the European financial media, the ``new economy'' stocks in Asia too have taken a beating. Some analysts have argued that further declines in Asia's IT sector ``may be a good thing'' although there are no hints of any panic selling in Japan, South Korea, Hong Kong, Singapore and India.

The Indian companies, Infosys and Satyam, have lost eight per cent value since Monday, which is in keeping with the rest of Asian companies. Even in India, the bluest of the blue chips from the conventional manufacturing sectors have recorded their yearly lows with signs of modest recovery as investors seek alternative options to cure the so-called IT ``madness''.

The European investors are putting the IT stock infatuation to the test. On the European foreign exchange markets, the dollar's value declined against the euro amid concern that foreign investors would soon shift money out of American financial assets.

Despite all the drama and rhetoric, the ``new economy'' is still a small part of the total economy in E.U. But, it is only a matter of time before major E.U. economies catch up with the U.S. in their scale of e-commerce.

It is also argued that the fortunes of the new and old economies are bound together and analysts agree that the real problem in the U.S. is that the old and the new cannot be separated.

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Section  : International
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