Techs make FTSE comeback

Tech stocks have had a rollercoaster ride since the start of the year

Five technology, media and telecoms firms are set to join or re-join London's key stock market index, the FTSE 100, muscling away some stalwars of the British economy.

The newcomers are

• internet security firm Baltimore Technologies,
• telecoms equipment maker Spirent,
• Electrocomponents,
• South African IT firm Dimension Data Holdings, and
• broadcaster Granada Media.

The drop-outs are five stalwarts of British industry, and firmly part of the "old economy". They are

• steelmaker Corus, formerly British Steel
• aero and marine engine maker Rolls-Royce,
• brewer Scottish & Newcastle,
• construction materials firm Hanson, and
• Associated British Foods.

The market is being selective in its new economy stock selection

Market observer

Internet service provider Freeserve was among the firms narrowly avoiding demotion from the premier league of UK stocks, while handheld computer maker Psion failed to return to the FTSE 100.

The formal list of FTSE 100 stocks was announced on Wednesday afternoon, but the result had been no secret as the managers of the FTSE index based their quarterly decision on the stock market valuations of listed companies at close of trading on Tuesday evening.

The changes will come into effect after the close of markets on 15 September.

In, out, in again

The rise, fall and rise again of Baltimore's share price has already seen it join and drop out of London's top 100 shares this year.

Its rollercoaster performance highlights the troubled nature of the investor love affair with technology stocks.

In March this year many internet and telecom stocks joined the FTSE 100, in what was hailed as a new dawn for tech shares.

By the next review in June, internet stocks had been trounced on global stock markets. Psion, Baltimore, Kingston Communications and Thus no longer had high enough valuations to stay in the index.

Their exit said little about the fundamental performance of these companies and much about the vagaries of investor sentiment.

"What happened earlier this year is that we saw a tech stock rally which was not based on reasonable grounds. Then we saw them get over-bought and reverse aggressively, and now the market is being selective in its new economy stock selection," one market watcher said.

"Those companies such as Baltimore that have real businesses are coming into focus while conceptual companies such as many of the dot coms are losing out," he added.

The surge in Baltimore Technology's share price was prompted by unconfirmed rumours that it could be taken over by Microsoft.

Old economy on the skids

Steel maker Corus, the former British Steel, has seen its share price suffer as it announced job cuts across the UK.

The company, which had a market capitalisation of £5.3bn when British Steel merged with Hoogovens, is now worth less than half of that.

On Tuesday it announced an operating loss of £96m for the nine months to 1 July as its carbon steel arm continued to suffer from the strength of the pound.

Its plans to cut nearly 5,000 jobs from its workforce are set to cost it nearly £40m over the next six months.