The local bourse can expect a dotcom shakeout as investors react to Monday's market meltdown, analysts have warned. And while the courageous might look to take advantage of cheaper share prices, they should beware the volatility of the current investment environment.
While the ASX All Ords rallied to close up 2.28 per cent, or 66.5 points, yesterday, Monday's 176 point, or $36 billion, fall is a warning sign investors should take note of, said he head of technology investment at Ord Minnett, Chris Smith.
He said the market was "incredibly volatile" and investors would do well to take a "wait and see" approach. Investors had neglected business fundamentals over the last nine months, and it was time those punting on the market had a longer term strategy, he said.
Gerard Minack, equity strategist for investment bank ABN Amro, said day-by-day stock market predictions were a "mug's game". Minack said it was too early to predict the market's movements in the short term, and said companies, particularly those involved in the "new economy", could expect the current market volatility to continue.
Minack said it was impossible to distinguish share market casualties from those merely bruised. However, he said companies without well-formulated business plans would suffer from a now cautious "market psychology".
IDC analyst Graham Penn said two groups of companies would emerge from this week's correction -- those with viable business models, and those whose market value was based on speculation. "The speculative ones will get their just desserts," he said.
Penn also said a similar division would form between venture capitalists and other supporters of dotcoms. Long-term players would continue to invest in proven, viable companies, but the market would "spit out the used car salesmen" who expected to become rich overnight, he said.
Penn said he expected the current "worldwide share market reassessment" to last for up to six weeks.
Gartner research director Bruce McCabe also said venture capitalists and their investment counterparts would exercise greater caution when choosing whose IT pockets to line. He said the market correction was a good thing. "The industry needed it (and) we've all been waiting for it."
McCabe said many overvalued tech stocks had not lost value, but rather had reached their true market worth. However, he said some listed technology companies from the "old economy" would unfairly suffer, because investors would confuse those businesses with the more-speculative dotcoms.
McCabe said he expected to see high volatility in the market for the next "few months", after which he predicted another surge in "online gambling" would take place. Speculative "mum and dad" investors would realise there was still far more money to be made in technology stocks and would reinvest en masse.
Professor Ian Harper from the Melbourne Business School agreed with McCabe's view of the ongoing viability of the local tech sector, and said it would be a mistake to ignore the technology revolution which was "good news for the Australian economy".
Harper said while investors should be increasingly "judicious" with their purchases, they should have a "broad exposure" to the technology sector, and "hang onto their seat". "The ride's probably going to get rougher, but nothing that's happening on the surface at the moment has dented my confidence in the technology sector over the longer term.
"We are at the cusp of something new and amazing, and investors have to be prepared to take the time and ride the waves of doubt," he said.