The year 2003 turned out to be better than many feared. It opened under the shadow of gathering war clouds in the Middle East. Indeed, for many markets it was the commencement of hostilities in March that marked the turning point for share prices. Our own FTSE 100 dipped in those early days of the conflict to a point where the loss, from peak to trough in the bear market that had started at the beginning of 2000, was uncomfortably over 50%.When the market flirted with 7000 on the last business day of 1999, few would have forecast that in little more than three years we would see the UK’s headline index below 3300. Yet just over nine months ago that was where we were. All major markets were suffering in the build-up to war, but the US – and most notably the Nasdaq market – had turned earlier. Their low points were struck towards the end of 2002. But it is to the year as a whole that I have given my attention – and an interesting picture it paints. If one feature of 2003 was the recovery of world markets, then no less important has been the fall from grace of the dollar. This has produced some interesting distortions in the performance figures for global markets over the course of the year. A strong performance by the headline indices in dollar terms in the US has been cut back to not much more than 10% once you translate the gain into sterling. This brings it pretty much in line with the performance our own market has delivered, with the interesting side-effect that the valuation gap between the US and the UK has widened still further. As you look around the world you can see that those countries with currencies that align to the dollar have suffered in sterling terms, while European bourses in particular have seen returns boosted by the strength of the euro. Investors may have welcomed this, but for governments it presents a problem given that euro strength is likely to militate against European economic growth. But it is in the emerging markets that we have had some of the best fun during 2003. By mid-December the Brazilian stockmarket had more than doubled in sterling terms. Measuring the performance of the Chinese market is less easy, with a lack of pricing transparency and a variety of indices covering a positive cornucopia of options. The Hang Seng index, which measures the performance of the Hong Kong stockmarket, was up by 35% in local currency terms, but the rise fell to less than 25% when the movement of the local currency, which is tied to the dollar, is taken into account. However, the Hang Seng China Enterprise index would have doubled your money even after a currency adjustment. Little surprise, then, that the performance of individual funds in this sector can vary so greatly. Staying in the Far East, Thailand delivered a profit of around 90%, while India – which is increasingly in the news these days – saw its index rise by more than 50%. The Japanese market saw a gain of nearly 20% – slightly more in sterling terms as the yen has appreciated against the pound. And just to round off the picture around the Pacific Rim, Australia put in a strong performance both in terms of its market and its currency, with both combining to deliver a rise of virtually a third from the beginning of 2003 until the middle of December. Europe benefited from both a strong currency and rising markets. The French CAC 40 index was one of the least exciting – 14% up in euro terms, but more than 22% higher for the UK investor. In Germany, the Dax index recorded a rise of more than twice that to deliver the strongest mainstream market performance in the eurozone. Overall, most of the broadly drawn European large-cap indices delivered sterling rises of between 20% and 25%, so the average performance of those funds investing in Europe ex UK – which amounted to around 24.5% over a similar period – shows that managers have, by and large, been making the best of the situation. But it was not only by looking abroad that it has been possible to find superior performance. Technology came back into its own during 2003. The turn started at the end of 2002 and was one of the reasons for the US market holding up better than others, as the uncertainty as we went into the Middle Eastern war damaged investor sentiment. The Nasdaq index, not strictly a technology play but one still used as one of the best indicators of what is happening to American tech stocks, was up by 45% by the middle of December – around a third higher in sterling terms – while the UK techMARK index rose by a whopping 56% over the same period. The fund sector did rather less well, recording an average rise of below 40% for technology and telecoms funds, but it was a revival that will have comforted many who supported this market into the bubble. So has the situation for technology changed fundamentally? There is no doubt that the business climate appears to have stopped getting worse. With the restructuring and cutting out of capacity that has taken place, many businesses are in a better position to benefit from increased orders. But the picture is still mixed. The decline in IT spending that commenced in 2000 may have come to an end, but that is not to say a new boom is on its way. Indeed, technology shares remain expensive compared with the rest of the market, so investors would do well to remind themselves of what has happened in the past. Investors will breathe a sigh of relief that the poor market conditions that persisted for so long appear to have come to an end. There is a great deal of correlation between the performance of major world stockmarkets. Bear markets tend to hit exchanges together. The characteristic of the one that we all hope is now behind us has been its durability. Indeed, by the beginning of 2003, many investors were looking at the Japanese experience and fearing that the developed world may be falling into the same pit. The 2003 rebound gives cause for comfort, but it is what happens in 2004 that will be truly important.