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Investment view

It&#39s that time of year again. I am not, of course, referring to the season of overindulgence and overspending – overspending on corporate hospitality, that is. No, it is the quarterly revision of the FTSE indices that exercises my mind.

In a fit of uncharacteristic bravery – given that the findings of the committee will be published at about the same time as this column – I will do my best to anticipate the extent and consequences of the revisions. It will be no surprise to learn that technology is likely to be a loser when the new FTSE 100 index is announced. Sema seems certain to exit. The shares are trading at less than a sixth of their value at the beginning of the year. The sad thing, from the point of view of those who believe that technology has been unfairly savaged by the market, is that this downgrade owes nothing to technology. Sema made an acquisition, mismanaged its integration and the rest is history.

On the other hand, Bookham looks likes leaving as reality catches up with expectations. Yes, Bookham is at the cutting edge of fibre-optic technology but all it takes is a few stories about weakening demand and some of the very optimistic models developed to demonstrate how this company can create value suddenly look undeliverable. The shares fell below their issue price last week, standing at less than 20 per cent of the peak.

Baltimore is another technology company that has yet to deliver profits and which may once again leave the index while brewery company Scottish & Newcastle looks set to return. It is tiresome for the index trackers but highly profitable for those charged with implementing the portfolio changes necessary.

But it is not all a one-way street for technology. One stock, Autonomy, looks set to gain admission to the index. Autonomy is in the business of constructing internet search engines – arguably the most vulnerable part of this highly volatile sector. Indeed, unfavourable comparisons have been drawn with similar US companies, yet its recent flotation met with considerable investor demand. There are still plenty of people out there who believe the internet represents the Holy Grail and that eventually fortunes will be made if you hold your faith.

As December dawned, it looked as though continued disenchantment with technology shares would continue to erode the foundations on which a year-end rally might be built. The FTSE 100 plunged to levels not seen for two years. Investment this year has been far from easy. Second-guessing how next year will pan out is even more difficult.

At least the US remains on course for a soft(ish) landing. Data published last week suggests the US economy is growing at its slowest rate for four years. True, this represented a revision of third-quarter data that may be further changed but it does indicate the action taken by the Fed is bearing fruit, even if some people remain dubious.

For example, a recent survey on employment trends suggested that US companies&#39 recruitment plans for the beginning of first quarter of 2001 are at an all-time high – little surprise in a country with virtually full employment. At least economists expect the rise in both personal income and consumption to be a mere 20 basis points, a big drop from the robust rises we saw in September.

But investors remain nervous, particularly over the technology sector. We may yet look back upon this difficult per iod as an excellent buying opportunity. It will only be for selected stocks, though. This must be taxing City research departments just now. It should concern all of us.


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