Although global equities are likely to remain volatile in the coming months, we expect technology shares to suffer less from the dislocation in global credit markets. Having fallen from the bubble conditions of the late 1990s, most technology shares are fairly inexpensive. Some technology stocks demonstrate defensive qualities, with strong balance sheets and fi rm earnings prospects.Many developed economies are now facing a downturn as the fi nancial crisis in the West continues to affect the real economy. The combination of falling house prices, ongoing fi nancial problems and high infl ation are hitting consumer confi dence. We therefore maintain our underweight stance in technology companies that are dependent on Western banks and consumers.We are also cautious about highly cyclical areas such as semiconductor and testing measurement companies. However, most technology companies' balance sheets remain strong and their earnings have been holding up well so far, benefi ting from client investment decisions made last year.Earnings are, however, likely to weaken over the course of this year as corporate demand cools especially in the developed countries. We therefore maintain exposure to more defensive areas within the technology sector.
