Some relief from falling markets

USA

US stocks posted modest gains amid slow trading last week, as investors expect the economy to recover later this year. The 4Q/2002 corporate reporting season is almost over.

Of the 457 companies in S&P 500 index, the average reported earnings rose 12.5% from a year ago, which met market expectations. The market also rose on reduced war fears. France, Germany, Russia and China proposed that more time should be given to weapons inspection in Iraq. As a result, the US/UK coalition will seek a second UN resolution in early March.

In the meantime, Dell Computer reported a 32% profit increase in 4Q/2002 together with higher sales forecast for 1Q/2003. This came as a great relief to investors Naturally, technology stocks rallied and market gathered momentum on strong housing data with gains widening out to ll other sectors.

Adding fuel to fire, several brokerage houses also raised ratings on computer chip stocks. The good market performance, however, was briefly stalled on weak economic data on Thursday. Nevertheless, on Friday, the market surged again on optimism that corporate earnings would improve in 2003 regardless a war in Iraq.

Healthcare service stocks had outperformed the market
significantly since the technology bubble burst in 2000 until a Medicare outlier payment scandal of Tenet Healthcare that send major healthcare service stocks tumbling. The incident created concerns over the long term Medicare pricing outlook.

Also, the expanding fiscal deficit situation created concerns of a potential Medicare spending 'push back'. However, aside from the political issue and after dropping more than 30% in the past two months, we believe healthcare service stocks are attractive.

While demand is expected to increase, capacity has not expanded. Actually, the number of bed has consistently decreased since the 80s, driving the occupancy rate to above 65% from 60% four years ago. 75% occupancy rate is generally considered as the practical maximum.

The tight capacity has allowed hospitals to raise reasonable price increases; especially, commercial rates have been increasing steadily in the last 4 years after dropping steadily in the early 90s. The positive pricing trend has enabled hospital operators to generate expected long-term average growth of 5-7% in revenue and 15-18% in profits.


Europe

European markets have bounced back slightly last week. However, stock prices were very volatile with earnings releases. Reuters Group shares, the world's largest provider of financial news, fell over 10% on reported large operating losses.

Reuters will cut 3,000 jobs by 2006 to reduce costs. UBS AG, the largest Swiss bank, tumbled as it had first quarterly loss in four years and suggested no immediate improvement in performance. This news pulled down other major banks including Deutsche Bank and Credit Suisse.

Deutsche Telecom slumped on plans to cut debt by selling 2.3 billion Euro convertible bonds, which must be changed for equity in three years. This news pulled other telecom stocks lower, as investors are wary about capital financing in such uncertain time.

By contrast, Sanofi-Synthelabo rallied after the French drug-maker made robust sales growth forecast for this year. And share price of Kingfisher, the largest U.K. home-improvement retailer, jumped 8% on positive earnings surprise. Oil stocks also made a strong comeback on supply concerns, especially after Exxon Mobil had fire at a loading terminal near New York City last Friday.

Japan

Japanese stocks ended last week slightly lower, paring gains in previous weeks. Big exporters such as Toyota Motor and Sony declined on weak U.S. economic data.

Some investors are concerned that U.S. consumer demand may start to slow in the coming months. On company level, Kyocera Corp., the world's largest maker of ceramic packages for semiconductor, cut its annual profit forecast by 10% on rising R&D costs as well as softening product prices. There were reportedly fund rotations moving from export to domestic sectors.