Monday, 3 December 2007

Biggest monthly fall since March 2000

Do you remember March 2000? Depending whether it was the UK or the US, March 6th 2000 or March 9th 2000 are generally accepted as the Day the Bubble Burst.

When I came to compile my monthly statistics for March 00 for the April 2000 edition of SYSTEMHOUSE, I reported that the FTSE SCS Index had fallen by 16.09% to 4134.

I was very close claiming that this record fall had been beaten in Nov 07. A last minute rally meant that the FTSE SCS Index fell by 15.9% in Nov 07.

Everyone thinks that the dot com bubble burst with a bang and “that was it”. But what happened was tech indices fell in March 2000 – and then just kept falling EVERY month. From a high of 5000 in early Mar 00, the FTSE SCS Index ended 2000 down 50% on the year at 1949. Then it fell another 56% to 844 by the end of 2001 and another 60% to 340 by the end of 2002 when the long, slow recovery commenced. Remember it closed Nov 07 at 530 – still roughly only 10% of its peak. The Techmark 100, which hit a peak of 5200 back in March 00 is still 70% down at 1621. Conversely, the FTSE100 is roughly the same (6432 now/6232 end Mar 00)

Paxman and Holway’s forecasts

Back in February 2000, I had been quizzed at the Regent Conference by the grand inquisitor, Jeremy Paxman. I’d been pressed into making a prediction that tech indices would be 60% lower by end 2000. (If you don’t believe me, please reread SYSTEMHOUSE April 2000) I explained this as “a return to sanity”. Sage, back then, was trading on an historic P/E of 168 and a PSR of 30! Today Sage trades on an historic P/E of 20 and a PSR of 3.3. (and their share price is 215p as compared to the £10 it hit in Mar 00)

In other words, valuations now are back in the realms of sanity. But that doesn’t mean that I don’t believe the tech markets will continue to fall. A 5-10% share price erosion month after month could easily knock another 30% off the FTSE SCS index by May next 2008. My guts tell me that is likely to be the nadir this time around.

Tech shares November 2007

The Share Indices table for Nov 07 is presented below. An awful month all round for tech. Actually the UK suffered more the US (where NASDAQ fell by 7% compared with an 8% fall in the Techmark 100) and Europe. UK SCS (down 15.9% - see above) was hit worse than Telecomm (down 5.3%) with Fixed line telcomm down 10.5%. Even Support services (where BPO players like Capita and the ITSAs are listed) fell 9%.

Axon (see post last week) was the worst hit individual SCS stock with a 35% fall. Vega was the best – up 34% at 280p after receiving a bid at that price from Italian defence and aerospace group Finneccanica.

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