Air hisses out of the tech-stock bubble

Are we seeing an “overdue resumption of sanity” in the technology sector? asks Richard Holway of Techmarket View.

Last week the New York initial public offering of King, the producer of addictive game Candy Crush Saga, fell by almost a fifth in three days. It had been valued at $7bn, which seems a bit much for a game that merely consists of “matching little coloured thingies” on your smartphone or tablet, says Jeff Sommer on Nytimes.com.

The King flop merely highlighted the broader retreat in technology stocks over the past month. The Nasdaq Internet index has slid by 10% from its early-March peak, while the Nasdaq Biotech has slid even further.

In 2000, the wider market was badly dented when air began to hiss out of the tech bubble. But this time it has “barely blinked”, notes James Mackintosh in the FT.

That’s because investors have rotated out of ‘growth stocks’, those that had attracted a premium valuation based on hopes of rapid profit growth in the future, to ‘value’ shares, companies on relatively low price-to-earnings or price-to-book levels.

This trend has been evident on a global scale, says Mackintosh; witness the uptick in Chinese bank stocks in recent days. If it holds, it suggests that the rally’s foundations are becoming more solid.

Growth stocks have outperformed the value plays since 2007 in the American market. It was high time investors concentrated on more reasonably priced shares and gave the overheated technology sector a long, overdue rest.

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