Old economy stocks topple fallen stars

Call it revenge of the old economy or a sign of the times but mobile giant Vodafone has relinquished its position as Europe's…

Call it revenge of the old economy or a sign of the times but mobile giant Vodafone has relinquished its position as Europe's biggest stock to oil giant BP Amoco.

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The market cap for these more tech-oriented companies had got way out of line with their profit potential
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Mr Ian Harnett, European equity strategist with UBS Warburg

As a global rout forces fund managers to rethink technology, media and telecoms (TMT) valuations, long neglected sectors like insurance, oil and healthcare have revived.

Market-watchers say the new world order is not likely to change for at least another three to six months.

"The market cap for these more tech-oriented companies had got way out of line with their profit potential," said Mr Ian Harnett, European equity strategist with UBS Warburg.

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"The oil sector in Britain makes £20 billion sterling [euro 29 billion] per year while the net income of the IT sector was £1 billion and telcoms were £2 billion. That gives you an idea of the scale," he said.

Of the 98 European companies that have reported 2000 earnings so far 43 were better than expected while 34 were negative surprises, according to Lehman Brothers statistics. The remaining 21 were in line with expectations.

A London broker said: "Valuations are not cheap yet and our view is that we've not seen a light at the end of the tunnel on the economic slowdown."

"For now," he continued, "stick to pharmaceuticals and steer clear of techs."

"I have no doubt that 12 months down the line, we are going to see equities outperforming cash and bonds," he said. Getting that timing right is going to be key issue."