Investors still happiest to `think electric’

Round-up of performance over the first six months of the year shows electronics are still the most attractive buy

Aerospace/Defence: up 3.75%

UK aerospace companies BAE Systems and Rolls-Royce have outperformed their European rivals. This is reflected in the sector’s overall performance which has shown real, if somewhat unspectacular, growth.

One reason for above-average performance is a shift in focus by investors away from internet stocks to `real’ technology stocks, while a flurry of mergers has made the entire sector more visible to investors.

Brian O’Keefe, engineering analyst at Commerzbank, said prospects for the sector look good: `Rolls-Royce and BAE Systems have strong order books, and the India deal for Hawk jets could be quite substantial.’

Chemicals: down 6.27%

Investors in the chemicals sector have seen a poor return. The biggest reason was the collapse of the international bid for gas group BOC, which caused a sharp fall in the price of the sector’s largest constituent.

ICI shares were depressed by talk of a drop in profits which may be announced towards the end of July. Generally, the sector has seen profits reduced by rising raw materials prices and an exchange rate which makes raising prices difficult.

Philip Morrish, chemicals analyst at Old Mutual, said a recovery was unlikely before the fourth quarter. `It has been a bit of a dud year,’ he said.

Engineering/Machinery: down 11.49%

This sector has substantially underperformed as investors have been distracted by excitement in other markets.

TI has been one of the better performers, though the company recently said it had experienced a lower level of interest from investors in the second quarter of this year, and threatened to pull out of the stock exchange altogether if things do not improve.

Paul Ruddle of UBS Warburg said: `It is hard to see why investors would choose to put money into the sector over the next six months, as prospects for growth are not good.’

Electronic/Electrical: up 27%

An increasingly cosy relationship with companies serving the new media and telecoms industries helped the electronics sector out-perform the market.

David Larkam, an analyst with Old Mutual, said an increasing number of companies in the sector are gearing their business to these areas: `People are shifting their portfolios. Look at Pace Micro Technology, which has a market capitalisation of £2bn making set-top boxes.’

With Marconi now listed elsewhere, Larkam believes automation group Invensys has become particularly important. `The performance of Invensys will probably now be one of the most significant factors to watch,’ he said.

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