Major stock markets across the globe posted mixed performance and remained volatile. Investors remained prudent, preferring to cash in their gains on rallies. Investors waited for additional improvement in corporate profits and a broad-based economic growth before committing more cash to equities. Bond markets witnessed a modest recovery.

For the week ended Monday 22nd September 2003, US stocks outperformed the global equity barometer, the Morgan Stanley World Equity index, which remained stable. Both key American equity indices, the Dow Jones Industrial Average and the technology-laden Nasdaq managed to close the week higher, up by 0.9% and 1.6% respectively, on the back of encouraging economic data.

Stocks in France and London eased by 1.7% and 1.4% respectively. A sharp share price reversal was noted on Asian bourses. Last week, the South Korean Kospi index dropped by 5.1% and the Japanese benchmark Nikkei 225 index slipped by 2.2%.

The major casualties in Asia were export-sensitive stocks, which suffered from the appreciation of their currencies vis-à-vis the US dollar, as investors reacted to last weekend G7/IMF meeting. At the meeting, central banks were encouraged to adopt a flexible exchange rate policy and were warned against excessive currency-related interventions. Last week, the US dollar fell to a 33-month low against the Japanese Yen.

The Taiwanese dollar and the Korean won climbed to 13 and 14-month highs versus the US dollar respectively. The weak dollar situation bode well for metals and commodities. Gold prices shot up by 2.9% to reach a seven-high while copper stood at its best level since early 2001. Shares of Japanese electronic concerns Sony and Nec Corp decined by 2.6% and 3.6% respectively, while South Korean chip manufacturer Samsung Electronics slumped by 6.9% during the week under review.

Ailing Alstom

The US Federal Reserve left its benchmark interest rate unchanged, as expected, at a 45-year low of 1.0% p.a. at its meeting held last Tuesday. Economic data from the US reaffirmed that the economic recovery is gaining traction, but at a slower pace compared to the figures recorded during the March to July 2003 period.

The labour market remained an area of concern. The US Conference Board?s index of leading economic indicators rose 0.4% in August, the fifth consecutive gain. The US manufacturing sector grew by only 0.1% in August and capacity utilization stayed stable at a 20-year low level of 74.6% during the same month. These figures provide little hopes for major investment in industrial and equipment in the short term.

A separate report indicated that the Eurozone economy avoided recession over the past three years, unlike the US. Higher government spending, that drove France?s and Germany?s budget deficits beyond the authorized limits set by European Commission, played an important role in fuelling growth in Europe.

Ailing French industrial conglomerate Alstom hit the headlines following the European Competition Commissioner?s decision to allow France to temporarily bail out the company. The French aid package was estimated at Euro 800m. Alstom?s shares, which were suspended for most of last week?s trade sessions, have lost about 90% of their value over the past year.

Contribution by Confident Asset Management