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updated 10/14/2003 2:50:50 PM ET 2003-10-14T18:50:50

World equity markets are heading for their best quarter since 1991 as investors’ enthusiasm for shares has rekindled on the back of an upturn in the global economy. The swift rebound in markets from their March lows has led some investors to herald the start of a new bull market, but others fear that economic recovery is still fragile and price rises may not be sustained.

The FTSW World Index has so far risen by 6.5 per cent since the beginning of July — a third-quarter performance beaten in the past 20 years only in 1991 when markets increased by 6.8 percent.

The third quarter of the year is traditionally viewed as the weakest of the four, with investors proclaiming the old adage: “sell in May and go away,” as they head off for their holidays. In the previous five years, share prices fell by up to 18 percent in the third quarter.

The world index also appears on track to record its best six months to September in 20 years — it has increased by more than 23 percent since April. In spite of a weak first-quarter performance, it is set for its highest nine-month showing since 1987.

The rapid rebound in share prices since March has now extended around the world, as Asian markets have all enjoyed an upturn in the third quarter. The best-performing market in the July-September period was Hong Kong — where share prices rose by 23 percent — followed by Taiwan and Japan.

Wall Street’s blue-chip stocks performed a little better than the world in the third quarter, with the Dow Jones Industrial Average racking up a rise of 8 percent. But the technology-heavy Nasdaq composite showed the Dow a clean pair of heels, gaining 19 percent on hopes that greater corporate capital-expenditure would revive demand in the flagging technology sectors.

London’s blue chips have not benefited as much from the recent upturn, as investors have switched out of the U.K. market into sectors more exposed to the global recovery. The FTSE 100 has risen by 3.3 per cent so far this quarter, while the All-share is up 4.5 per cent.

Many strategists have been surprised by the momentum behind the recent rise in prices. “The short-term strength of the rally has caught many investors out,” said Matthew Merritt, managing director of global equity strategy at Citigroup.

“But how much of a recovery is already priced in? It seems highly unlikely that markets can sustain the sort of momentum seen in this quarter.”

While the sharp upturn in prices has led some investors to herald the start of a new bull market, others point out that markets will continue to thrive only if there is a sustained world economic recovery.

But this week’s fall in the dollar and rise in the oil price could derail that recovery. Some markets have seen sharp recent losses. Last Monday Japan suffered its largest one-day decline in two years.

Additional reporting by Chris Flood

© The Financial Times Ltd 2010. "FT" and "Financial Times" are trademarks of the Financial Times.

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