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Enablers, beneficiaries and bursting bubbles

Have last month's falling share prices of internet companies vindicated all the dire warnings of a speculative bubble?

Author: Anja Helk

Most analysts are still bullish on internet stocks. There is much more to the internet boom than the dot coms: the internet is a productivity-enhancing tool, and contributes to economic growth. "The recent share slides have nothing to do with a bursting bubble," says Peter Misek, senior research analyst at Chase H&Q. "The internet is a real thing. It is going to change the way we live, and no single sector will be unaffected by the net." Farmers, cement factories, car manufacturers and financial brokers alike have benefited from the internet. "The whole market will become an internet market," concludes Teun Draaisma, European equity strategist at Morgan Stanley Dean Witter. "In a few years' time companies will either be internet stocks or not exist."

What then are the reasons for falling shares? "There is a strong seasonal skew as far as e-commerce revenues are concerned," says Paul Cooper, fund manager responsible for technology and e-commerce at Sarasin Investment Management. "In the first quarter the market switches out of internet stock for a while. Business for internet companies tends to look very good in the fourth quarter, so shares perform very strongly. This first quarter therefore sees some profit-taking, though compared to the first quarter last year, share prices are still growing."

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