Heavyweight US technology stocks have been adversely affected by worries on Wall Street this year, despite the IT-rich Nasdaq Composite index having pushed well into new territory.
The large capitalisation companies on the Dow Jones industrial average have found themselves beset by worries of profitability and the impact of higher interest rates on consumers.
According to the latest strategy report released by international investment bank HSBC, the gulf between the performance of the "new economy" represented by Nasdaq and that of the "old economy" as pictured by the Dow Jones, is more complicated than at first thought.
Technology stocks such as Dell, Yahoo and Microsoft are in fact down 10% to 15% this year, despite having been the star performers last year.
"It appears as if investor perceptions about the new economy are in constant flux and the perceived beneficiaries are mutating. While last year investors could not get enough of Internet plays, this year there is growing doubt about the profitability of their business models and the costs sustained in building sufficient brand strength to survive," the report said.
The three themes that have been propelling the Nasdaq this year have been:
1. the semiconductor boom;
2. the enthusiasm for biotechnology stocks (human genome mapping); and
3. the surge in network equipment manufacturer players (Cisco and Juniper Networks) and fibre optic cabling (CIENA Corp and JDS Uniphase).
However, no biotech stock makes the HSBC top 10 in terms of contribution to return on the Nasdaq Composite this year.
HSBC said the top 10 contributing companies for 1999 were virtually all from the computer, Internet and software industries. However, this year is a very different story. In fact, three of the companies in last year`s top 10 are actually in the bottom 10 list by contribution this year - namely Microsoft, QUALCOMM and Yahoo. Furthermore, Dell, which has suffered from the general route among the PC makers, joins them there.
"Each in a sense is the victim of a loss of investor confidence in their position as dominant players in their industry or in the dynamics governing top line growth in their respective markets," the HSBC report said.
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