Volatile IT shares to blame for the crash

John Oates takes a look at the highs and lows of the stock market crash last week, and the part the computer market played.

Share prices in London began a cautious rise on 3 November after acrash last week, and the part the computer market played. week of the biggest falls in the last eight years - caused to a large degree by computer shares.

IT stocks in the US have been blamed for the huge increase in US share prices this year and for the volatility which has led to the largest fall since the collapse of 1989. IT and semi-conductor stocks are seen as being more heavily influenced by developments in the Far East than by shares of other companies.

The spiral began on 23 October with the Hong Kong Hang Seng index falling a massive 10.41 per cent. The London Stock Exchange followed suit with the FTSE 100 falling 3.06 per cent.

The cycle began again on 27 October with a 5.8 per cent fall in Hong Kong. The FTSE fell 2.6 per cent, while New York went down 7.18 per cent on 28 October. On the same day, the stocks saw a huge 13.7 per cent fall in Hong Kong, while London fell 1.76 per cent. On 30 and 31 October, stocks were calmer although some slight falls were still registered.

IT stocks have been seen as a sure thing by investment managers controlling massive accounts for pensions and other funds. During the past year, Compaq stock rose by over 300 per cent, and Microsoft stock by 120 per cent.

IT companies have higher potential profits than traditional industries, and are more dependent on technology, causing their shares to be more volatile than normal shares.

The situation remained clouded in uncertainty this week, with many pundits predicting further falls, while others claimed market stability. For IT shares, two issues remain important: problems in Asia and the impact of continuing demand for the sub-$1,000 PC.