Will history repeat itself?

By THIS IS MONEY
Updated: 19:00 EST, 25 July 2001

Some commentators in the Press tell us that events are lining up as they did prior to the slump in the 1990s. Which stocks fared well during that period and which sector came through unscathed? What has history taught us? PB, Helmshore.

Scott Penrose, analyst at NatWest stockbrokers says: Historically as an economy enters recession it is the defensive sectors (that provide essential goods and services such as the utilities, pharmaceuticals and food retail) that tend to outperform.

Indeed, the likes of Tesco and Sainsbury recorded gains in the region of 15% during 1990 (versus an 11.5% decline in the FTSE-100).

The cyclical sectors underperform the wider market - these sectors include media, property, engineers and chemicals. Indeed such sectors were among the worst performers in 1990.

In 1991, as investors tried to discount the prospect of an economic recovery, the defensive sectors lost some of their momentum and some of the cyclical sectors began to recover.

In 2000 and so far during 2001 the defensives have been among the better-performing sectors. While this in part reflects the spectre of slowing economic conditions, it does not necessarily reflect the fear of an all-out economic slump.

This time around the better performance from sectors such as tobacco and pharmaceuticals partly reflects a flight to quality in the wake of the bursting of the technology bubble.