Wednesday, 1 October 2008

Share indices in September – What a difference a month makes!

It’ll come as little surprise that every one of the indices we track (see below) reversed all their positive August gains – and then some. All are now well below the waterline YTD, with Fixed Line Telecom the worst (-35%). Among the UK indices, though, it was software and computer services (SCS) that fell most during the month (-15.8%), though the notable exception was again Axon which rose another 13% in September (30% YTD) with yet no resolution on ownership. Among the larger UK software and IT services players, Misys was worst hit (-23% MTD, -24% YTD), whereas Capita (actually in the FTSE Support Services sector, but we treat it as one of “ours”) ‘only’ lost 3% in the month leaving the stock level-pegging YTD. Logica fell 20% MTD and is now down 9% YTD; Sage is down 7% MTD and 15% YTD.

It’s hard to think that there will be any IT players still ‘living in denial’ after the dramas of the past couple of weeks. Those that have yet to batten down the hatches may have left it too late. We fully expect demand levels across the IT sector – from consumer to enterprise – to drop with resulting impact on top and bottom lines. We should see signs of this in the September quarterly reports (the Indians kick off with Infosys on 10th October) and we expect the impact to become more evident in the oh-so-crucial December quarter. It really makes the traditional Jewish New Year greeting “L’Shana Tova” (“to a good year”) – of which yesterday marked the start – ring rather hollow!

Footnote: The media are still giving a good hammering to “spiv traders” (read short-sellers) as the cause of these woes. You may have seen my ‘contrarian’ views in UKHotViews last week (IBM added to shorting ban list) and I stand by them. Let me add some food for thought. Short-selling is not the cause of the problem but the effect. If a trader sees a dodgy balance sheet – the symptom – because a bank betted on bad debts – the cause – then I think that’s fair game (with caveats). And please don’t forget, a ‘short’ bet only works if there is a taker, i.e. a counterparty who is betting the stock will go up!

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