World stocks experienced a volatile week as companies started reporting their earnings for the third quarter of 2003. Stock markets remained sluggish and failed to respond to a generally positive set of corporate reports. The latest economic reports also provided some hope for a sustainable global economic recovery.

For the week ended Monday 20th October 2003, the Morgan Stanley World Equity Index remained stable. Asian bourses were the week?s top performers, highlighted by the 3.5% jump of Japanese equities and 2.5% appreciation of South Korean shares. Major bourses across the globe posted mixed performances. The US technology-laden Nasdaq Composite index edged lower by 0.4%, while the Dow Jones Industrial Average index remained stable at the 9778 level. Last week, German stocks rose by 0.6%, while Swiss and French stocks remained stable. The Financial Times Stock Exchange-100 index, which tracks the performance of UK?s top100 companies, eased by 0.4% amid expectations of higher interest rates in the UK.

Poor earnings guidance and some disappointing earnings reports in the technology sector encouraged ?sell on the-news? profit-taking. Lower-than-expected earnings from computer networking concern Sun Microsystems, semiconductor manufacturer Xilinx and Broadcom, a communication and storage company, weighed on the overall technology sector.

Lower earnings guidance from e-commerce giant Ebay also exacerbated the selling of internet stocks. Moreover, investors were even reluctant to bid up shares of TMT companies, like IBM or Intel Corp., which saw substantial profitability growth in the third quarter of 2003.One area of concern for this sector is that most of the improvement in profitability is derived from cost cutting and steam-lining of activities rather than top line growth.

Mergers

Analysts remained concerned about the anaemic growth in revenue of technology stocks, which indicate that capital spending in information technology remains weak. Steve Milunovich, an analyst at brokerage house Merrill Lynch, remained concerned about the outlook of technology companies and highlighted that their revenue improvement was mostly due to favourable currency movements, mergers and acquisitions.

Latest economic reports during the week increased optimism for a more robust global economic recovery, driven by higher economic activity in the US and Asia. The industrial sector, one of the weakest-performing segments of the US economy, showed some positive signs, as indicated by increased output of consumer goods and business equipment for the month of September. Moreover, US government data also provided some encouraging forecast for levels of shipments and new orders in the months ahead. Analysts expect US industrial to benefit from the current weak dollar environment, which may potentially boost US exports.

Contribution by Confident Asset Mangement