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Sunday, Sep 08, 2002

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Not an 'august' month

K. S. Badri Narayanan

MARKETS were rather cautious across the globe in August though the major countries ended lower, albeit marginally.

The US market began the month lower due to a mix of gloomy economic reports (which indicated that the much-expected recovery in the US economy might actually take some more time), lacklustre earnings guidance from the US corporates and news of renewed investigation at AOL Times.

However, the US market rallied strongly as traders expected a rate cut ahead of the US Federal Reserve meeting. However, the Fed did not alter the interest rate but signalled concern about the turbulent financial markets and hinted a possible easing of the monetary policy.

The International Monetary Fund's $30-billion rescue package for Brazil also generated a positive impact across the global market, particularly in the US and Europe.

Earlier, there was some apprehension in a section of the trading community that the US corporates will find it difficult to certify their financial statements with the Securities and Exchange Commission by August 14.

However, investors heaved a sigh of relief when the deadline passed without any big surprises, as many US chief executives signed sworn statements.

All these seemed to have built-up investor confidence, which helped the Dow Jones Industrial Average breach the crucial 9,000-mark during the later part of the month.

However, the cautious US markets could not hold on their gains and succumbed, partly due to profit-booking.

Nortel Network's announcement of lowering revenue forecasts and 7,000 jobs cut also affected the sentiment towards the end of the month.

The European markets also opened the month on a weak note, as Germany's insurance major, Allianz, shocked bourses with a profit warning.

The gloomy mood was compounded by a downbeat note from Goldman Sachs, saying consensus 2003 earnings estimates were too optimistic for key technology companies, including SAP, Alcatel and Philips.

However, the media major, Vivendi's plan to cut its borrowings, put the European markets on the recovery road. Telecom major, Ericsson, also induced some confidence by announcing a rights issue.

Better financial performance turned in by a couple of big corporates — the UK engineering group, Rolls-Royce, Germany's ThyssenKrupp and Swiss chemical group Clariant — further bolstered the European market. During the month, Germany's Xetra Dax reshuffled its index components.

In the Asian market, Tokyo's Nikkei slumped to a six-month low below the 9,500-mark in earlier part of the month tracking the US markets.

However, the rally in the US in the later part of the month pushed back the Nikkei above the 10,000-mark though the index closed around 9,600, mainly on profit guidance from the Canadian technology major, Nortel.

Hong Kong also closed lower, led by property stocks on concerns about price discounting by developers and a glut of new flats for sale.

The star performers were the Bombay Stock Exchange's Sensitive Index and the National Stock Exchange's S&P CNX Nifty.

Both posted healthy return due to the recovery in technology stocks.

The Government plans to bail out the beleagured Unit Trust of India seemed to have lifted the spirit in the bourses towards the later part of the month.

The other major gainer was Brazil. The IMF loan appeared to have re-invoked investor confidence, as the market posted a healthy return of over six per cent.

The other gainers were Korea, Mexico and Italy. The month's top losers were Indonesia and Taiwan.

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