For the week ended Monday 13th October 2003, major stock markets across the globe strengthened further. The week?s rally was sparkled by encouraging economic reports and expectations of improved corporate profitability. The widely-followed Morgan Stanley World Equity Index edged by 1.3% higher, increasing its gains to 16.9% since the beginning of 2003.

The sharpest appreciation was observed in Europe. German and French bourses jumped by 3.9% and 2.4% respectively. In the US, technology stocks continued to outperform, helped by expectations of better sales and earnings for these sectors in the third quarter of 2003. The technology-laden Nasdaq Composite Index rose by 2.1%, compared to a gain of 1.8% recorded by the Dow Jones Industrial Average Index.

On the economic front, the US job market continued to show signs of improvement, with the latest reading of initial weekly claims for unemployment benefits falling to an eight-month low of 382,000. The US Federal Reserve Board reported that consumer credit rose by a greater-than-expected USD8.2 bn in August, mostly due to rise in light-vehicle sales. Last week, shares of automaker General Motors and electronic retailer Best Buy rose by 4.1% and 5.8% respectively.

The US Commerce Department reported that the trade deficit fell by a greater-than-expected amount to $USD39.2 bn in August. Some analysts pointed out that the deficit reduction resulted from imports declining at a more rapid pace than exports. Latest data showed little evidence that the recent weakness in the US dollar had boosted the export of US-made goods and services. Shares of industrial conglomerate General Electric finished the week lower by 6.0%.

Export performance

In Europe, equity markets reacted positively to the news that the German economy has for the first time in 11 years recorded the world's fastest export growth. The strong German export performance dampened fears that the recent appreciation of the Euro may curb European exports and jeopardize eurozone?s economic recovery. Moreover, German equities also rallied amid forthcoming changes in the German taxation rules that will make insurers? stock-market assets tax-deductible. German life and health insurers will be able to offset the value of equity write-downs against their tax bill for operating earnings since the start of 2003. German insurers Allianz and AMB Generali, which all took equity write-downs of hundreds of millions of euros in 2003, jumped by 7.2% and 2.1% respectively during the week under review.

Increased optimism over the earnings outlook of European technology stocks also supported European markets. Dutch electronics concern Philips Electronics is expected to report a EUR36m profit, versus a EUR330m loss a year ago. Its shares jumped by 9.2% over the week under review. Moreover, potential take-over in the semi-conductor industry boosted shares of German chipmakers Infineon and French STMicrolectronics by 4.2% and 4.7% respectively.

Contribution by Confident Asset Management