By PETER GRIFFIN IT WRITER
The New Zealand sharemarket has weathered a tumultuous week in stronger shape than any of its overseas counterparts, due in large part to the local dominance of "old economy" stocks.
"The market has gone back with a vengeance to the old economy," says Don Turkington, managing director at Cavill White Securities.
"Listed technology stocks have taken a pounding and the whole market appetite for the new economy has changed."
Although the local market has been buffered by its smaller exposure to tech stocks - and Dr Don Brash's timely interest rate cut - the outlook for technology companies and their investors has become even more muddied.
This week's international "adjustments" have seen technology stock values line up more fully with reality. The tech-rich US Nasdaq market dipped below the 2000-point mark after eclipsing 5000 just a year ago, a development that triggered a sharp worldwide selloff.
But as Wall Street was down 6 per cent on the week, London 5 per cent, Australia 2 per cent and Japan 4 per cent lower, the local market closed 1 per cent higher.
US analysts estimated that around $US3.6 trillion ($7.6 trillion) in funds invested on the Nasdaq has evaporated in less than a year, and more is likely to be lost. This year's major slips came first in the PC sector. Networking giant Cisco Systems was a catalyst after announcing it would lay off up to 8000 employees and deliver reduced revenues into next year.
Just two weeks after Intel announced over $US12 billion ($29 billion) of investment for the next year and the production of 20 million Pentium 4 processors, the company said it was trimming its headcount by 5000 and expected first-quarter revenue to be $US6.5 billion ($15.8 billion), down $US2.2 billion on quarter four revenue.
The world's technology leaders - Intel, Dell, Microsoft, Cisco, Apple and Compaq - have all felt the impact and responded with collective belt-tightening, including trimming headcounts and cutting back on investment. Profit warnings have become the norm as the major technology players forecast a grim year ahead for revenue. Their share prices have taken a hammering. Internet darling Yahoo's fall from grace has been most dramatic. Its shares were worth $US183 a year ago but were down to $US15 this week.
But the Nasdaq freefall had less of an impact on the New Zealand market than some had originally feared.
For some time the general slide in tech stocks has been manifesting itself and most of the local market's technology stocks - companies such as Advantage Group, Spectrum Resources, IT Capital and Strathmore Group have seen their share prices slashed, alongside any stock with "e" before its name.
Dr Turkington says the fact that New Zealand failed to buy in to the hype surrounding high-tech stocks when they were on the rise is now proving to be an advantage, as the stocks spiral downward.
"That may be a significant reason as to why New Zealand is out-performing the rest of the world this year," he says.
The New Zealand sharemarket is up 10 per cent for the year, compared with Wall Street's 6 per cent slump and Australia's decline.
Dr Turkington points to the solid performances of non-tech stocks such as The Warehouse, Auckland International Airport and Contact Energy. Consumer confidence in traditional sectors of industry is still strong in New Zealand, despite Nasdaq jitters spreading to more conservative stocks on Wall Street.
"The Dow has started to move down, though not as dramatically as the Nasdaq. There's been a rub off on equities generally. That may not be so much of a reflection on disenchantment with tech stocks as a reflection of a concern about a general recession."
But Dr Turkington warns that the tech companies now face a difficult task in securing investment to grow.
"It's very difficult for existing technology companies to raise new capital from the market, or for new companies coming to the market to successfully float. The market appetite for that type of risk is hugely reduced. The ability to expand when you have a weak share price is very limited."
Rob Levison, the executive director of electricity billing system specialist Spectrum Resources, has watched his company's shares sink to 3c from a 52-week high of 27c, but says international demand for the company's software remains strong.
"I don't think it will have any affect upon us at all because of the nature of the software that we sell, whether it be into New Zealand, the US, Canada or wherever. Those types of purchasing decisions made by electricity utilities aren't affected by movements on the Nasdaq or the Dow."
Mr Levison is not alone among companies getting on with business as best as they can during hard times.
Andrew South, equities portfolio manager at BT Funds Management, says the collapse of consumer and business confidence rife in the US is not filtering down to New Zealand companies due to the size of our technology market.
"We don't have a very big tech element to our indexes. A lot of it tends to be unlisted or attached to one of the aggregate companies.
"I think by and large we've seen the rout in the tech stocks in the US. Of greater concern to the broader market is the effect the slow economy is having on earnings in the broader industrial market."
But New Zealand's venture capital and investment community remains defiantly optimistic.
After all, tech companies have lost the power to demand the prices they were seeking six months ago.
And venture capitalists are finding in some cases they can feed off start ups who have run out of cash.
NZSE rises amid world technology collapses
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