Major stock markets across the globe weakened as investors booked their profits ahead of the release of third quarter of 2003 corporate earnings reports. Moreover, analysts considered that equities were fully priced at current levels, especially technology and ?economic-sensitive? stocks, which already witnessed a healthy rally since the beginning of this year. Equities were also under pressure by the Organization of Petroleum Exporting Countries? surprise decision to cut oil output quotas by 3.5%. Crude oil price jumped by 4% on the news.

Analysts expect oil price to appreciate further amid surging demand from Asian countries and forthcoming winter in the northern hemisphere. Investors remained prudent as higher oil prices are considered as a threat to the nascent economic recovery. The week saw some sector and asset rotation towards safer investments, namely defensive stocks (such as consumer staples and utilities), gold and high-quality fixed income instruments.

For the week ended Monday 29th September 2003, the widely-followed Morgan Stanley World Equity index, dropped by 1.9%, but remained up by 12.1% since the beginning of 2003. Both key American equity indices, the Dow Jones Industrial Average and the technology-laden Nasdaq indices closed the week down by 1.6% and 2.7% respectively.

However, late during the week, American stocks livened up following positive news about consumer spending and the semiconductor industry. The US Commerce Department reported a 0.8% rise in consumer spending for the month of August (mostly boosted by auto incentives and tax reliefs) and a 0.2% appreciation of personal income. US personal savings were also reported to be at its highest level in six months.

A report from the Semiconductor Industry Association reported that worldwide chip sales rose by 4% in August, which is its sixth consecutive monthly increase. The report also highlighted significant growth in the consumer electronics goods. Chipmaker Intel jumped by 4% on the news.

Last week, major stock markets across Europe and Asia emulated the performance of American indices. Stocks in Paris and London declined by 2.9% and 2.0% respectively. The German Bourse sagged by 3.8%, despite reports indicating improved business sentiments. The latest survey from the Ifo economic institute showed that German business expectation improved for the fifth month. Other positive reports included greater optimism in the German wholesale sector and Germany?s BdB banking association?s view that there are growing hopes for an early economic recovery for Europe?s largest economy. Asian Bourses were adversely affected by the weakening of the USD versus major currencies.

The slide of the dollar is expected to hit the profitability of Asian export-driven companies. This situation seemed to benefit China-based companies, since the Chinese yuan is tied to the USD. China?s low-cost manufacturing base has become increasingly attractive to even companies based in Taiwan and South Korea amid the appreciation of their home currencies vis-à-vis the USD. Last week, Japan?s Nikkei 225 and South Korea?s equity benchmark the Kospi indices slipped by 2.3% and 2.6% while the Chinese stocks climbed by 1.7%.

Contribution by Confident Asset Management