Anyone who was lured into a technology fund in the heady days of 1999 is probably still nursing losses of 60% and has abandoned all hope of recovery. They may be surprised, therefore, that there is a renewed buzz about this unloved sector in the City and some are even talking about it as a relatively safe bet in the stock market storm.

Tech and telecoms funds were the top performers in August with a return of nearly 10% and the best — Scottish Mutual Technology — was up 13%. The month before, biotechnology took the top spot, with Axa Framlington Biotech up 14%, closely followed by Franklin Biotech at 13%.

You shouldn’t read too much into one month’s data, of course, and tech’s revival in August was largely due to the stronger dollar. Most tech companies — at least those that you or I would want to buy — are based in the US, so the greenback’s near-10% rally over the past month has boosted returns for sterling investors.

There’s more to it than just the dollar, though. While banks both here and across the Atlantic are still suffering an almighty hangover from the credit bubble, technology companies dealt with their excesses a long time ago and the sector is pretty much the leanest out there. It is the only sector in America’s S&P 500 index where the cash on its balance sheet is worth more than its debt, at 5% of market capitalisation, according to figures from Stuart O’Gorman, director of technology at Henderson Global Investors.

By contrast, the financial sector has debt worth four times its market cap. Banks are in the business of lending, of course, but even the industrial sector has debt at 53% on its balance sheet. And in an environment where debt is a dirty word, any sector that is throwing off cash is going to be a favourite.

Then there’s the emerging-market angle. The average American spends about $300 on semiconductors every year (in their TVs, phones, cars and computers). The average Chinese citizen spends around $15 and in India the figure is just $9. As consumers in emerging markets get richer, their spending is bound to increase. Admittedly that’s an argument that has justified buying everything from oil to pork in the past year or so but, while everyone’s been grabbing commodities on the back of emerging-market growth, the same can’t be said of technology.

The valuations of tech firms barely moved during the expansion of 2003-07 and that has sparked a rush of deals in the sector. The same thing is happening with biotech. The pharmaceuticals giants will see a wave of patents on blockbuster drugs expire between 2010 and 2013. They need to find another way to make big money and one option is to buy up smaller groups. Pfizer alone is said to have a $17 billion war chest.

Last month, Swiss giant Roche offered $43.7 billion for biotech pioneer Genentech, followed a week later by a $5.2 billion bid from Bristol-Myers Squibb for ImClose Systems, which makes anti-cancer vaccines.

Again, the long-term trend looks good thanks to the Asian consumer. The Chinese healthcare market is worth

£1.8 billion and is growing at more than 10% a year. It is already the second-largest market for medical devices in Asia, behind Japan, and will surpass it in the next six to eight years. Only about 150m Chinese enjoy healthcare close to European standards but the government is committed to extending that to the entire 1.3 billion population.

So what to buy? Thomas Becket, manager of the new Psigma Balanced Managed fund, which is going to be heavy in biotech, likes Britain’s Synergy. It provides sterilisation services and is setting up a facility in the eastern Chinese city of Suzhou. It also increased profits before tax by 48% to £25m this year — pretty good going when earnings from most sectors are heading south. In a recession, biotech is a pretty good place to be as the one thing we don’t scrimp on is drugs and medical services.

Tech isn’t as defensive as biotech and if the global economy goes into recession, IT budgets will be cut. Given how cheap the sector looks, though, the chances are share prices will fall less than mining and industrials.

O’Gorman likes Cambridge-based software group Autonomy, which is unique in having its records management software taken up by the US authorities. He also tips Tekelek, which provides the systems behind mobile text messaging.

If individual stocks are too risky, you could look for a mainstream manager with big positions in tech or biotech. Jeremy Podger is a big fan of technology in his Threadneedle Global Select fund, according to financial website Citywire.

And you could take a look at Mervyn Douglas, who manages the Norwich UK Focus fund. He sold out of his last mining stock at the end of last year and has taken a big position in tech — he may have been too early, but that’s the kind of conviction you need in a downturn.

Kathryn Cooper is editor of the Money section

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