MONEY TALK By Dr Markas Gilmartin Senior investment adviser, Chase de Vere investments

After the technology bubble burst at the turn of the millennium, it seemed that investors in the once mighty sector were onto a permanent loser.

However, during recent months there has been a rally and although it has done little to ease the plight of those who invested at the height of the boom there are some encouraging signs for the future.

Over the last few months, the sector has been one of the strongest performing with the tech-heavy Nasdaq US outperforming the mian stockmarket indicies.

What is more, funds investing in a basket of technology shares have enjoyed strong growth.

But before you pop the champagne corks and celebrate I'm afraid that it's important to keep your head.

This recovery has come from a very low base and could be short-lived.

Why the recovery?

While the global economy is still shaky, technology is one area set to see real revenue growth.

The technology firms that have managed to survive have improving profits and cash flows.

The industry has been getting its house in order after the excesses of the nineties

Technology relies on investment by other companies and the good news is that over 60% of America's top 500 companies are now back on track with their business plans.

These big companies can start to increase their research and development spending - which is good news for UK investors that have tech ISAs and unit trusts which have large holdings in the US.

House in order

Worldwide, demand for IT products is high. Morgan Stanley/IDC reckons there will be over 500 million internet users by the end of 2003.

High-speed broadband and cable will only push demand even further.

Total European online retail sales jumped from �3bn in 2001 to �5.5bn in 2002.

What is more, the industry has been getting its house in order after the excesses of the nineties.

This means they have finished slashing prices and costs to survive, the deadwood has gone, and companies are not 'burning' investors' money.

Survival

Companies have run down stocks over recent years - as there were too many paid-for but unwanted goods lining the shelves.

Businesses have now reached a low point on their inventories, and need to replenish stocks and upgrade systems.

In truth, unless there are signs of a significant economic recovery, some technology share prices still look a little high

In the US, over 2000 debt-saddled IT companies have gone bankrupt, which means that the survivors have a better chance with less competition.

Company revenues, compared with share price, have jumped twenty-fold which may well justify such high current valuations.

Risks

There is always a contrary view and some argue that the rally is primarily due to a general market upturn driven by the end of the war in Iraq.

What is more, the recovery could be derailed by a further downturn in the world economy forcing companies to cutback once again on IT in a bid to improve their bottom line.

In truth, unless there are signs of a significant economic recovery, some technology share prices still look a little high.

Having taken the health warning on board, what part should technology play in an investment portfolio?

As a rule of thumb technology should only make up between 5% and 10% of your portfolio and you should not invest unless you are willing to wait several years for a return.

The views expressed are solely those of Dr Gilmartin and are for general information only, do not constitute financial advice as defined by the Financial Services Act and are not intended to be relied on for the purposes of making an investment decision.

Always obtain independent advice from a qualified, registered financial advisor before making any investment decisions.