Investors in this sector will be waiting anxiously to see if this rally can be sustained. It should not be forgotten that many TMT shares have lost a large part of their value recently. The October gains did not even bring them back to where they were a year ago.
The outlook for the sector remains uncertain. For example, Cisco published excellent results for its last quarter but indicated at the same time that in the next quarter revenue may even decrease. Intel is cautious about its prospects while AMD, its main competitor, reported a net loss of $254m (£161m) in the third quarter. Some stars, such as Amazon, continue to trade at a high price-earnings ratio as investors seem willing to pay a premium for their shares.
Outlook
Many TMT firms suffer from poor earnings’ forecasts, high debt and a gloomy economic outlook. As a result it is likely that the current rally is unsustainable. With the exception of a few companies with strong balance sheets, such as NTT DoCoMo of Japan, the sector does not yet seem ready to compete with more mature areas such as healthcare.
Such an environment could favour stockpicking fund managers who are in a position to take advantage of market volatility.
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