Market doldrums = opportunity

A general lack of interest, as shown by the slow trading volumes, left the global markets in lackluster trading last week. Not much really went on as markets moved down or sideways with some profit takers moving out of positions. Stocks ended lower Monday and were moving lower Tuesday as well. Notwithstanding the market performance, the economic news continued in a positive vain. There was plenty of good economic and corporate profit news for the week. US housing market remains red hot showing a 1.5% increase to 6.2 million units for July. According to a report released by the Commerce Department, the July housing starts figure is at its highest level in 17 years, supporting our theory that despite the recent economic contraction, people are not reducing their lifestyle. The surge in construction was fuelled by the lowest mortgage rates on record. Economists expect the housing market to remain buoyant.

Consumer confidence figures were up once again for August and for the fourth straight month, the Conference Board’s index of leading US economic indicators rose, this time logging 0.4% for July. The index benefited from the improvement in the unemployment and the increase in the money supply. A spokesperson for the Conference Board commented that the favorable environment could be further enhanced by increases in consumer spending and business investment. From past articles, readers would remember, we have been watching the employment figures with a particular interest and this week’s figures revealed more positive news. US unemployment figures continued to fall last week with new unemployment claims falling to their lowest level since February. The report by the Labour department said that the pace of redundancies had slowed, as the economy gained strength.
In the US corporate front, Home Depot, the world’s largest home improvement chain, reported its second quarter profits increased by almost 10%. The company’s chief executive announced that sales were boosted by higher demand for new products and by increased advertising. The strong housing market has also appeared to have helped lift sales at its home improvement stores.

Wall Mart has upgraded its guidance for sales, now projecting a 4 to 6% increase in annual sales, up from 3 to 5% last quarter. Again, this news augers well with our belief that consumers have the financial wherewithal to maintain their lifestyles and will continue to do so, thereby fuelling the programmed economic recovery. Across the pond, the UK more or less followed in the steps of the US with economic indicators showing the economy remains strong and economic parameters are improving. Areas of decline are slowing with turnaround becoming evident. Of greater concern in the Euro zone remains France and Germany. Economic growth in France was negative in the second quarter of 2003. According to government released figures, the French economy shrank 0.3%, as consumer spending declined and the strength of the euro hurt exports. Other major eurozone economies including Germany, Italy and the Netherlands have also reported an economic contraction during the second quarter. On a positive note, an index compiled by the ZEW Institute to measure investor confidence, rose for an eighth consecutive month amid growing expectations of improving economic growth in the eurozone during the second half of 2003. Perhaps consumer spending will be strong enough in the eurozone to fuel economic recovery as well.

While North America and Europe suffered the ravages of a heat wave and the north eastern seaboard recovered from severe power shortages, Japan was calm, cool and collected as the Nikkei 225 Index broke the 10,000 mark and the Topix rose above 1000 last week. This would mark the first time in over a year the indexes have been above these barriers, demonstrating a greater optimism about the Japanese and global economies. We continue to believe that now is an opportune time to revisit your existing portfolios with a view to restructuring to favour an asset allocation towards economic growth in ownership related positions.

e-mail: darcy@investments-intl.com