Last week, major stock markets moved sideways as investors initiated some sector rotation. Investors exited stocks that did well during the first half of 2003, namely technology, media and telecommunication stocks, and migrated towards defensive stocks and gold. Last week, investors were concerned about the threat of rising interest rates to the budding global economic recovery.

The closely watched Morgan Stanley World Equity Index remained flat for the week ended Monday 11th August 2003. Technology-heavy indices finished lower, as indicated by the decline of America?s Nasdaq Composite Index (-3.1 %) and Europe?s Dow Jones Euro Stoxx Technology Index (-2.6 %).

The ?old economy? Dow Jones Industrial Average index fared better as it ended the week in positive territory, up by 0.3 %. The German bourse slipped by 1.9 % amid disappointing second quarter results from some of Germany?s leading companies. Stocks in UK, France and Switzerland gained

1.9 %, 1.5 % and 0.3 % respectively. The Nikkei 225 index, an index tracking Japan?s top companies, also headed higher (+0.4 %).

On the earnings front, investors were disappointed from American networking giant Cisco Systems, as it failed to beat Wall Street?s expectations. Analysts downgraded the stock in view as they considered that its valuation metrics were stretched and the sector?s performance may not live to expectations.

News of the European Union antitrust regulators finding that software maker Microsoft had unfairly leveraged its dominant position in its Windows operating system for servers also influenced investors? decision to avoid the TMT sector. Cisco Systems and Microsoft ended the week down by 8.1 % and 2.2 % respectively.

Poor German corporate earnings in the financials and chemicals sectors highlighted the still-fragile state of Europe?s largest economy. Germany?s third largest bank, Commerzbank indicated a sharp increase in provisions for bad debts while earnings of pharmaceutical/ chemical concern Bayer AG failed to meet analysts? expectations. Last week, shares of Bayer AG and Commerzbank edged lower by

8.9 % and 8.2 % respectively.

Euro too strong

The latest economic reports also exacerbated the decline of German stocks. Germany?s trade surplus with the rest of the world widened in June, but both exports and imports were weaker than in the previous month. The strong euro was regarded as the main culprit for fewer German exports. UK?s economy also suffered the same fate as indicated by the decline of its exports to non-European Union countries. Britain?s trade deficit hit the highest level since November 2002.

In contrast, economic data for the US, the world?s largest economy, reflected strong performance in the business and manufacturing sectors. Whilst reports noted a positive trend in factory orders and productivity gains, the job market showed some signs of stabilization, with the weekly reading of jobless claims pointing below the 400,000 level.

According to the Institute for Supply Management, its July survey of non-manufacturing business managers revealed that service-sector activity improved for the fourth consecutive month and reached its highest level since the index was introduced in July 1997.

Contribution by

Confident Asset Management