Last week, corporate earnings reports for the latest quarter influenced the performance of major bourses. Despite a generally upbeat corporate results, investors preferred to take profits and drove world stocks lower for the week. Poor earnings guidance for the coming quarter and 2004 was regarded as the main factor dampening interest in stocks, especially those trading with high price-earnings multiples. The week was also marked by asset rotation, as investors switched from stocks to fixed-income instruments. Low-graded bonds witnessed the sharpest appreciation.

Over two-third of America?s top 500 companies have already released their financials for the third quarter of 2003 and their average earnings were up 22% from a year earlier, according to financial data provider First Call. Some of the big names reporting in during the week that beat earnings targets included 3M, Citigroup, Texas Instruments, Amazon.com, Nortel Networks, and Microsoft. Microsoft was a good example of the topsy-turvy action in the stock market during the week under review. Though the software giant beat earnings estimates for the latest quarter, its stock dropped nearly 8% because the company?s estimates for fourth-quarter and 2004 earnings were not high enough to please investors. Despite the significant rebound in profits, analysts remained concerned over the anemic sales growth.

For the week ended Monday 27th October 2003, the Morgan Stanley World Equity Index dropped by 1.9%, but remained up by 15.0% since the beginning of 2003. Bourses in Japan posted one of weakest performance, with its 6.1% decline. Japanese bellwether company Sony saw its net income drop by 25% for the latest quarter and reduced its earnings forecast for 2004. Analysts viewed that the recent appreciation of the JPY versus the USD may endanger Japanese economy and corporate profitability. Both of US key equity barometers, the Dow Jones Industrial Average and the Nasdaq Composite indices, edged lower, down by 1.7% and 2.2% respectively. Major European bourses also remained weak, as investors remained concerned by the strong Euro situation. European car manufacturers witnessed their sales grow below expectations, mostly due to a drop in exports. According to analysts at investment house Morgan Stanley, European car manufacturers may see their earnings drop by 10-20%, should the Euro appreciate further to $1.20. With the increased probability of higher interest rates in the forthcoming months in the UK, investors exited British stocks, pushing the FTSE-100 index 2.2% lower for the week under review. The household and consumer goods areas are seen as the most vulnerable to higher debt-servicing and lower purchasing power of consumers. Last week, shares of retailer Marks&Spencer and supermarket chain Tesco declined by 2.9% and 2.7% respectively.

In the week ahead, equity markets are expected to fare better amid investors? ?buy-on-dip? mentality and also recent merger and acquisitions news (Bank of America buying Fleetboston Financial in the US, French consulting group Cap Gemini bidding for software concern Transiciel , merger of cigarette-makers Brown & Williamson and RJ Reynolds).

Contribution by Confident Asset Management