World stocks weakened for the week ended Monday 15th September 2003 on profit taking amid concerns about sustainability of the recent stock market rally. Worries that consumption may dip in the months ahead as well as lingering concerns about the jobless recovery in development nations and concerns about the 11th September anniversary also weighed on investors? sentiments. The widely-followed Morgan Stanley World Equity index declined by 1.5%, but remained up by 14.2% since the beginning of 2003.

Profit taking was concentrated in sectors that outperformed the broad market over the past two weeks, namely cyclical and technology stocks. Technology indices in the US (Nasdaq) and Europe (Dow Jones Stoxx Technology Europe) slipped by 2.3% and 4.3% respectively. Defensive areas provided some resistance, as indicated by the performance of the Swiss (-0.1%) and British (-0.7%) bourses. News of a new case of SARS infection in Singapore exacerbated selling pressure in Asian bourses. Stocks in Singapore and Hong Kong declined by 2.6% and 1.5% respectively. South Korean stocks also headed South as investors assess the damages caused by the typhoon ?Maemi?. Japanese stocks fared better and rose by 0.3% for the week under review.

Japanese stocks have become increasingly popular over the past months, as the Japanese economy showed signs of improvement. Since June 2003, the Japanese Nikkei 225 index rallied by 27%. Continued interventions by the Bank of Japan to limit the appreciation of the Yen and expectations of a US-led global economic recovery drove shares of Japanese exporters higher. Going forward, investment strategists at investment house Morgan Stanley remain positive on Japanese stocks and expect that ongoing structural reforms will benefit the economy. Analysts? top stock picks were banks, real estate and cyclical companies operating in the chemical, retailing and construction sectors.

Latest data from the US indicated that the world?s largest economy continue to progress towards the recovery route, but at a slower pace. The US Commerce Department reported that retail sales, which account for one-third of US economic activity, grew for the fourth consecutive month in August by 0.6%. However, most retail stocks slipped lower during the week as the retail sales figure was at the low end of Wall Street?s estimates. Analysts had expected that increased optimism regarding the economy, tax rebates, and back-to-school shopping would translate into even higher sales. Reports indicating the widening of the US trade deficit and higher unemployment levels are considered as possible risks to the US economy going forward.

Contribution by Confident Asset Management