Outlook: Down and down goes techMARK. Is there any way back?

Housing is golden; SAB/Miller Brewing

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TechMARK tumbles below 1,000

Fears grow that housing market is 'out of control' as annual price rise hits 18%

SAB raises $1bn for further deals after Miller acquisition

It's hard to credit now, but when techMARK was launched in November 1999 as a cobbled together hotchpotch of companies with any kind of a technology connection, however tenuous, everyone wanted to a part of it because of the premium rating it was meant to bestow on a company's share price. Never mind that the techMARK launch was about two years too late. The London Stock Exchange always was a bit slow on the uptake. Nor was it ever entirely clear what a traditional defence stock like BAE Systems had to do with the rip roaring new internet economy, but there it was, none the less, alongside Freeserve, QXL and all the other pioneers of the British internet sector.

Just five months later, the technology bubble went pop, and for the techMARK it has been downhill ever since. Yesterday the index fell through the 1,000 mark for the first time, and the way things are going, the Stock Exchange might be wise to kill it off altogether. By unhappy coincidence, the techMARK landmark was passed on the very day that the Chamberlain brothers announced their resignation from the internet incubator, Durlacher. They bet the future of their mini-investment bank on the technology mania, and they are paying the price.

These days, membership of the techMARK index is if anything a positive embarrassment. The glamour status it bestowed at the top of the boom has become a negative and down at heel one, as in if your company is quoted on techMARK then it must be on the brink of insolvency. In many cases, this is far from being true, but there's no denying the sickening extent of the downturn that has engulfed many of these companies and industries. The loss of value in the technology and telecoms sectors alone over the last two years amounts to a crash of unprecedented proportions. The collapse in production across large parts of the technology sector is also without parallel.

Almost unbelievably, however, there has been no outright recession, either in the US or Britain, and in Britain at least, the overall effect on unemployment has so far been zero. The painless nature of the downturn looks all the more remarkable when it is considered that it is not just the boom sectors of technology, telecommunications and media which are deep in recession. The events of 11 September poleaxed the airlines and insurance industries on top. Meanwhile, large parts of the investment banking industry are in a state of near paralysis. Enronitis has only added to the misery. Both the size and number of high-profile insolvencies are far worse in this downturn than in the recession of the early 1990s.

A business collapse on this scale would normally be reflected in very serious repercussions across the length and breadth of the wider economy. The reason it hasn't is that policymakers have been able to sustain buoyant consumer confidence through sharp reductions in interest rates and a big expansion in credit. It has been a quite remarkable conjuring trick, again only made possible because inflation is at historically low levels. The jury is still out on whether it is going to succeed. So far it has, and encouragingly, there are now clear signs in the UK economy that business confidence and investment is beginning to pick up again. Policymakers may have succeeded in bringing about a Houdini-like escape for the wider economy which is quite without precedent in the history of the last two centuries.

Unfortunately, the outlook for the technology and telecommunications sectors scarcely looks any better now than it was six months ago. In most big technological revolutions, the timespan between the peak of anticipation, which in this country roughly coincided with the launch of techMARK, down into the trough of despair and then back to where it was at the peak again, is about 10 years. There is no reason this one should be any different. The extent of the losses suffered in the downturn might suggest even longer.

Housing is golden

The gold bugs are back with a vengeance. Actually they have been there throughout the bear market of the last two years, but it is only recently that anyone noticed them. So far this year, the price of gold has risen about 16 per cent. While the stock market has bombed, gold has soared, rising by some 20 per cent over the last three years. Gold seems to have reconfirmed its reputation as a reliable store of value in troubled times.

According to the World Gold Council, demand for gold jewellry fell by 15 per cent in the first quarter of this year, but this was more than compensated for by a 36 per cent surge in demand from private investors, particularly the Japanese. Why the renewed interest? As the world's oldest currency, gold has always held a certain primeval draw, but these days it is increasingly shunned by nations as a currency reserve, while as an investment it suffers from the key drawback of not paying any income. Indeed, gold actually carries a faintly negative interest rate because of the security costs of holding it.

No, the reason why gold is suddenly fashionable again is the same as that which is driving everyone into the property market. When you cannot trust anything else, investing in safe as houses bricks and mortar looks an increasingly attractive option. In Japan and elsewhere in the Far East, gold holds the added attraction of being a comparatively risk free and liquid alternative to sticking your money into an insolvent banking system, where you might end up losing the lot. With the dollar on the wane, poorly performing US assets have lost their allure, bonds have gone as far as they are ever likely to, and don't even mention the stock market.

The trouble with gold is that it is in essence just a gambling chip equally likely to become a bubble if enough people start to believe in it as the dot.coms. The Bank of England won't admit it, but large parts of the UK housing market are already in the latter stages of a bubble. It only requires a big rise in interest rates for the whole thing to come crashing down. It will take a while to sink in, but with rents falling, the buy-to-let market has already burst.

SAB/Miller Brewing

South African Breweries has finally done its Miller Brewing deal, so where does that leave the "Thistle Interloper"? This was the code-name Interbrew gave to Scottish & Newcastle when it was planning its bid for SAB. If we bid for SAB, the Belgium brewer figured, then there is a real danger of SAB turning round and doing a defensive merger with Scottish & Newcastle in order to shut us out. Dead right. SAB considers itself a pillar of the South African nation, and the idea of being taken over by a Belgium pip-squeak understandably filled the company with horror.

As it happens, SAB was always rather keener on linking with S&N's Brian Stewart than he was. Instead he went off and bought into Russia's leading brewing business. Only time will tell whether that's a better deal than paying top dollar for Miller in the nil-growth market of the US. Graham Mackay, SAB's chief executive, insisted yesterday that he was getting great assets for no premium. Another way of looking at it, since the deal gives Philip Morris a 36 per cent stake in SAB, is that Philip Morris is gaining control of SAB without having to pay a takeover premium either. You pays your money....

jeremy.warner@independent.co.uk