Tech stocks: the bounce-back's coming...

Investors are unlikely to begin trading with confidence on Nasdaq again for at least another 12 to 18 months, according to Merrill Lynch's top high-tech analyst.

The global economic downturn and the terrorist attacks in Washington and New York have deterred many investors from parting with their cash - and they're not going to start spending again for some time.

Steven Milunovich, chief technology strategist at Merrill Lynch, said: "Our intuition is that it will be another year or so before confidence is restored. Markets might rally but there is still a significant risk that as they go higher we'll have another bust."

The US is not expected to return to 1990s levels of trading until 2003.

Milunovich warned that if technology values suddenly increase by 15 per cent or more, there is a danger of creating a 'mini-bubble'.

After a few months of hyperinflation, stock will go down fast - possibly even to rival the lows after 11 September, he added.

But following a period of intense trading with many investors getting out of Nasdaq, there are some returning to tech stocks in the hope of catching the much-touted economic upturn at the start of next year.

Milunovich said: "Time is as important as price. Investors are still there but it is now out of fear of missing the upturn. Greed is no longer the main concern for money managers.

"But Merrill Lynch does not see any evidence of an upturn next year. GDP in the US is only set at one per cent and that translates to a very moderate recovery."

The longer term future for the IT market is bright with values increasing substantially over the next 10 years. But in the short term, the recovery will be at best moderate, he added.