After forging ahead strongly for months, information-technology shares have taken a beating on the Tokyo stock market.
A broad array of information and telecommunications stocks, recently the darlings of investors around the globe, have given up much of their gains.
IT shares forged ahead through much of 1999 on growing waves of buying. Technology company shares thus reached unreasonably high levels by any traditional measures of value after investors stepped up purchases of these roaring shares, paying little heed to earnings prospects.
The irrational stock-market valuations of technology shares, often called “bubbles” in the marketplace, cannot hold.
In retrospect, the uptrend in the market value of these shares began running out of steam early this year, prompting investors to sell them and cash in on profits.
The move away from IT shares has been gathering momentum since early March amid speculation that further corrections are inevitable.
On Wall Street, selling pressure continued unabated last week, sending the key market gauge tumbling on April 14.
The technology-heavy Nasdaq composite index dropped more than 34 percent from its high, nearly three times the 12 percent fall in the Dow Jones industrial average, which measures the stock market performance of “old economy” blue-chip issues.
The corrections came as no surprise, however, as investors have become increasingly selective in their new stock picks.
Although IT shares rebounded strongly on Wall Street this week, the question is whether investors have reaffirmed their confidence in the sector.
In Tokyo, many IT shares remain mired at depressed price levels.
Viewed from a longer perspective, however, there is little dispute that the IT sector, a driving force for the economy in the future, will regain investors’ confidence.
Although further volatility is inevitable, a good number of IT shares will prove to be profitable investments.
Investors should opt for IT stocks supported by favorable business potential and earnings prospects and should not be misled by general market sentiment.