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Investment View by Brian Tora

Ever thought that events are conspiring against you to the extent that

things cannot possibly get worse – but then discover that they can?

Last week was much like that in technology. The Techmark index plumbed new

lows. There were profit warnings galore – and not solely from technology

companies. But the story of the week was Marconi. It is one thing for a

small technology company engaged in speculative internet activities to lose

90 per cent of its value in short order. It is quite another matter when a

business as established as that of Marconi suffers a similar fate. Yet that

is precisely what happened.

Remember, Marconi is the name by which we presently know the mighty

General Electric Company. A year ago, Marconi shares were close to

£13. By the time last week ended, they were hovering at around

£1. The City has savaged the shares following news that trading

conditions had deteriorated rapidly and profits would suffer accordingly.

But by far the worst aspect was that it took the company a whole day to

deliver a statement to shareholders, during which time trading in the

shares was suspended. Investors who might have wanted to exit were denied

the opportunity and, when trading recommenced after a full day&#39s

suspension, it was at a level less than half that at which they were


Marconi had been upbeat when it last spoke to investors only six weeks

ago. Then it made light of problems in America,pointing out it was more

Europe facing. And it is in Europe where matters have become significantly

worse very quickly. The telecoms industry is clearly retrenching hard, so

it was no surprise to see shares such as Vodafone marked sharply lower in

sympathy. It is hard to imagine things getting much worse but there will be

few now who will bet against such an eventuality.

It is amazing to think back 18 months and remember how optimistic everyone

was over the new economy. TMT then was king but all three sectors are

travelling through severely choppy waters at present. The problems facing

technology and telecoms are now highly visible, not least because their

profit prospects are not. Against this background, both our monetary policy

committee and the European Central Bank decided against cutting interest

rates. This is where a dilemma exists. News from certain parts of industry,

such as technology and the manufacturing sector, are grim indeed. Yet

consumers still seem to be spending while house prices in this country

remain on an upward path.

In Europe, the dilemma is even greater, given that inflation is now well

above the 2 per cent target for the Eurozone. This exposes the

shortcomings of a one size fits all policy on interest rates. Germany would

clearly love help to restimulate its economy, which is flagging badly. But

there are other parts of Europe where growth continues and inflationary

pressures are building. The weakness of the euro will not be helping either

and, with the slowdown in the US spreading around the rest of the world, it

seems that the European manufacturing industry is being denied the

opportunity to reinforce economic growth.

Yet not all the signs are bad. There was a surprisingly upbeat report from

US purchasing managers, with their index moving back above 50 per cent.

This suggests that we may be passing through the eye of the storm and that

matters will start to improve as we move into the second half of the year.

Unfortunately, we have to travel through the second-quarter reporting

period, which begins very soon. We must hope that, against all

expectations, surprises are on the upside. When we learn that companies are

finding things have at least stopped getting more difficult, perhaps

markets will take heart and investors will feel able to put on their buying

boots again.


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