Technology shares in decline: Dotbomb 2.0 or slow puncture?

LAST Friday, Nasdaq suffered its "largest oneday plunge" since June 2012, said Noah Rayman in Time. The 2.6 per cent drop was led by some of the market's biggest tech firms, including Google, Yahoo and Facebook – all of which fell by more than four per cent.

After a year of storming gains and hype, investors are clearly reassessing values. Facebook stock, which has doubled in value over the past year, fell nearly ten per cent in two sessions.

"Today is kind of like the panic day," Rick Fier of Conifer Securities told Bloomberg. Having been so heavily positioned in tech in 2013, many punters simply "couldn't stand it anymore, and now they're just puking these names".

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Babies and bathwaterThe inevitable worry is that we're in for a full-scale Dotbomb 2.0, featuring an indiscriminate sell-off. "I have a real fear that a few frothy companies will have their bubble burst, and that will translate to big falls for all tech companies," Richard Holway of TechMarketView told The Times.

There were certainly traces of that when Asian and European markets caught the chill, notes the FT. Nervous investors in London sent prices in newly listed debutantes, Just Eat, AO World and Boohoo.com to below their eyebrow-raising launch prices. But they also ditched established tech champions like micro-chip companies Arm and Imagination Technologies. In Asia, shares in Tencent, best known for its WeChat social media app, fell 4.5 per cent; and the Japanese mobile group SoftBank was down 4.6 per cent.

Slow punctureThis feels "more like a slow puncture in a tyre than the pricking of a bubble", says Alison Smith in the FT. And it's no bad thing – a correction was overdue.

Moreover, there may be opportunities to snap up "quality" shares "dragged down by their more overvalued peers", says Ed Bowsher on MoneyWeek.com. If you don't fancy Twitter (down 31 per cent since the start of the year) or Facebook, you might take a look at Amazon (down 20 per cent), the online broadcaster Netflix (down a "huge" 23 per cent in a month) or, indeed, Google.

Momentum on tech has gone "into reverse" and some shares may have further to fall. But there could be bargains out there.

A version of this article appears in the 11 April 2014 edition of The Week