September as difficult as ever for equities.

(From Financial Director)

Byline: Graeme Johnston.

Economic background

We suggested last month that September is traditionally a difficult month for equities, and 2002 was no exception. Global equities continued the slide that began in August - the FTSE World Index fell by 13% in sterling terms, to its lowest level since January 1996. Global equity indices have now almost halved from their peaks in September 2000, a bigger fall than even the bear market of 1973-74.

The concerns central to the latest stage of the decline remain as they were last month. Economic data continues to send a downbeat message about global activity, but has not been so uniformly negative as to elicit interest rate cuts from major central banks. Meanwhile, the likelihood of a US attack on Iraq has added to the political uncertainty that tends to unsettle markets.

A rising aversion to risk among investors helped to prolong the bull market in bonds. Ten-year government yields in the US fell to 3.6%, their lowest level for 40 years. Elsewhere, progress was measured but significant: the equivalent yields in the UK and Eurozone fell to under 4.5%, edging below the levels reached in the wake of 11 September.

Equities