The widely-followed equity index, the Morgan Stanley Capital International (MSCI) World equity index eased by 3.1% for the week ended Monday 7th July 2003. Most major equity markets moved higher for the week on favourable capital spending news. The strength also resulted from investors rotating out of bonds (which are already on a three-year bull run) in favour of equities, which also appealed to some extent to income-seeking investors. Analysts indicated that a substantial number of stocks in the S&P 500 index paid dividends roughly equal to the yield on the ten-year US Treasury bond.

Last week, technology, media and telecommunication stocks led the market rally. The US technology-laden Nasdaq Composite Index surged by 6.0% to 1720.7 points, its highest level in 15 months. An uptick in analysts? recommendations for the technology, media and telecommunication (TMT) issues together with an anticipated pickup in capital spending in the second half of year 2003 were regarded as the main factors boosting technology stocks. The release of investment house Goldman Sachs? information-technology survey also fuelled investors? interest for TMT stocks. The survey indicated a favourable outlook for IT capital spending for the year ahead and also indicated a strong upside in revenues for semiconductor stocks. Chipmakers Intel, Texas instruments and STMicroelectonics jumped by 5.4%, 6.4% and 6.0% respectively following the release of the survey on Monday 7th July 2003. Moreover, computer hardware stocks benefited from higher expected sales linked to the back-to-school season. Shares of Hewlett-Packard and Dell gained 5.6% and 4.4% respectively during the period under review.

Investment banks upgraded

In Europe, the Dow Jones Stoxx 50 index, which tracks Europe?s 50 largest listed companies, rose by 2.7% buoyed by gains in the technology sector and reports of consolidation moves in the chemicals and metals sectors. Newspapers reported the potential acquisition (worth $3.0bn) of a unit owned by UK?s Imperial Chemicals Industries (ICI) by German consumer goods group Henkel. ICI jumped by 8.7% on the news. Last week, Canada?s metal maker Alcan launched a hostile $3.9bn offer for French competitor Pechiney. In a recent research note investment brokers Merrill Lynch upgraded investment banks, such as Morgan Stanley, amid an environment seen to be conducive to increased merger and acquisition activities. Last week, Morgan Stanley rose by 8.0%.

London equities, which gained 1.1% for the week, underperformed major stock market indices amid weak economic data. UK factory production, which accounts for a fifth of Britain?s economy, fell unexpectedly in May, as output of automobiles and computers declined. Manufacturers blamed the high borrowing costs (UK benchmark rates stood at 3.75% p.a. versus America?s 1.0% p.a.) and a strong pound sterling for the ills of the UK manufacturing sector.

An upward trend in share prices was also noticed in Japan, which saw its Nikkei 225 index shoot up by 7.8% amid the expected economic upturn in the US. Moreover, investors renewed their faith in Japanese stocks on hopes that the Japanese Government will push forward with its plan to kick-start Corporate Japan. The proposed plan includes reforms enabling balance sheet repair, the strengthening of earnings by improving management and revival plans for troubled but viable firms. Moreover, Merrill Lynch analysts recently upgraded Japanese stocks, which are perceived as most exposed to an upturn in the world economic cycle. As at Monday?s close, the Tokyo stock market closed at a nine-month high.

Contribution by Confident Asset Management Ltd