Is the bear market over for equities?

USA

The U.S. stock markets posted small gains last week despite mild profit taking. The major stock indices were up four straight weeks, setting a record in the last six months.

At the FOMC meeting last Tuesday, the Fed held interest rates steady but indicated an easing bias. Poor economic data did subsequently prompt some speculative longs to liquidate.

April retail sales and weekly jobless claims came out weaker than expected, so the market is concerned that slow job growth may crimp consumer spending and delay business investment.

Economic sensitive stocks pared gains, but technology stocks led the market rebound on Friday as Intel and Nvidia issued positive guidance.

Since corporate earnings turned out stronger than expected in 1Q/2003, analysts may upgrade estimates for the whole year 2003, which could be further boosted by fiscal stimulus. Moreover, the Fed is also leaning towards easy monetary policies. There has been domestic funds flowing from cash into equities in recent months.

Many investors, now faced with anemic cash deposit yield, have shown renewed interest in equity investment.

Europe

European stocks pared gains last week after having rallied in April. A weakening U.S. dollar triggered some profit taking on concern that a strong Euro exchange rate will make the large European companies less competitive.

Companies such as Aegon, BASF, AXA, Lafarge and Siemens, which all have large operations in the dollar-bloc countries, were under selling pressures. Other companies, such as Pearson, the world's largest textbook publisher and owner of Financial Times, slid on stock rating downgrade. Airline stocks were again under attack.

KLM Royal Dutch Airlines reported large quarterly loss and Air France said that traffic fell in April. Both BOE and ECB also disappointed investors for not cutting interest rates. But, most major European bourses, on a currency-adjusted basis, generate positive returns.

Investors may overweigh the Euroland at the expense of Asia, which would see earnings deterioration in 1H03 because of the deadly virus SARS.

Japan

Japanese stocks climbed again last week after having touched all-time lows in April. NTT DoCoMo and shares of other phone-related companies rose on earnings optimism.

Market also advanced on hopes of government taking measures to buy back more stocks. Tech stocks and exporters rose along with the NASDAQ, but the upward momentum has been somewhat tempered by the poor performance of Sony, which upset investors with a poor 2002-2003 operating result.

The Sony shock' still ripple through the Tech ector and causes investors to look for safe investment alternatives. Investors have therefore shifted funds from risky sectors to less economic-sensitive stocks such as drugs and consumer staples.

Takeda Chemical Industries and Seven-Eleven Japan performed well. anks such as Mizuho Financial Group and Mitsubishi Tokyo Financial also helped push the Topix higher on report that The Bank of Japan may consider buying shares held by the commercial banks to stem the stock market slump.