The slide in U.S. Internet stocks has definitely helped set off a corresponding collapse in the European net sector. But don't blame just the U.S. markets. A number of homegrown problems accelerated the rout. According to analysts, many of the 65 European Internet stocks are illiquid and overvalued. They're often brought to market by second-tier investment banks, which bid up the price to generate investor enthusiasm, then quickly sell once official trading begins.
Market capitalizations are small, so share prices tumble when institutional investors bail out.
And many European investors, newcomers to the stock market as well as the Internet, are spooked by volatility. Oversupply and overvaluation are the two biggest problems. A glut of new technology initial public offerings has overloaded the still-immature market. Three years ago there were no publicly traded European Internet companies. Today the Neuer Markt lists an estimated 20 companies each month, the vast majority of which are tech-related.