Investor An insider's guide to the market: October has delivered the best monthly performance in equity markets since the initial bounce from the bottom of the bear market that occurred in April.

The FTSE World index rose by over 6 per cent in October compared with a rise of 8.6 per cent in April. American stock market indices such as the S&P 500 and the Dow Jones Industrials rose by over 5 per cent during October.

However, Europe managed to eclipse Wall Street as the FTSE Eurotop 300 index climbed by over 7 per cent during the month. In Ireland the ISEQ Overall index also put in a strong performance, rising by 6.2 per cent.

As the table shows, the strong October showing across global equity markets means that 2003 is now likely to be a vintage year for investors in equity markets.

In local currency terms, US equities have outperformed European markets by a considerable margin so far this year. The S&P 500 is up 19.4 per cent compared with the 7.6 per cent rise in the FTSE Eurotop 300 index.

However, when viewed from the perspective of a euro-based investor, the gap narrows sharply. Due to the weakness in the dollar/euro exchange rate, the year-to-date return from the S&P 500 is only 8 per cent when expressed in euros, which is just marginally ahead of the Eurotop 300 return.

A notable feature of returns so far this year is the strong recovery in the Far East. Japanese equities have risen by 23.1 per cent in 2003 and some other Asian markets have done even better. For example, Hong Kong's stock market has now risen by 32.6 per cent in the year to end- October.

Equity investors everywhere are therefore enjoying a welcome synchronised global recovery in share prices.

The key impetus for this strong and diffused equity market recovery has been a gradual strengthening in the view that economic conditions are steadily improving, leading many analysts to forecast a synchronised global economic recovery in 2004.

The recent estimate for the third-quarter economic performance of the US economy provided a powerful impetus to this optimistic forecast.

The figures showed that US GDP grew at an annualised rate of 7.2 per cent in Q3, which was the highest growth rate in 19 years. Consumer expenditure was strong, but of crucial significance was the fact that investment spending was also strong. A sudden and sharp fall in investment spending by companies in 2000 was the chief catalyst for the ensuing economic weakness and subsequent prolonged equity bear market.

A revival in investment spending is now being viewed by many financial experts as confirmation that the economic recovery will become self-sustaining.

Another interesting feature of the data is that inventory levels continued to decline and are now at very low levels.

This suggests that there will be some build-up in inventories during the fourth quarter, which will act to boost economic activity.

As well as the improving economic news from the US, recent indicators in Europe are pointing towards an imminent recovery. Confidence in the prospects for the European economy is getting a huge boost from the super-charged US economy given that European growth usually responds to US developments with a lag of about six months.

Up to recently, the strength of the euro versus the dollar was acting to dampen this positive stimulus. However, sterling and the Japanese yen have now begun to appreciate against both the dollar and the euro.

This means that the euro is no longer taking the brunt of the competitiveness adjustment associated with the weakening dollar. That burden is now being shared with other economies such as Britain and Japan.

If these currency trends continue, it may be that Europe's competitive position versus the US may now stabilise. Furthermore, if sterling and the yen continue to appreciate, Europe may even gain competitiveness in some important markets outside of the US.

All of these developments are good news for Ireland and recent estimates for the second quarter showed that Irish GNP grew at a yearly rate of 3.1 per cent. If the global economy does achieve a sustained period of synchronised growth over the next 12-18 months, then the Irish economy is likely to resume growing at its potential growth rate of about 5 per cent.

In such a scenario, Irish companies should be able to deliver sustained profit growth thus enabling share prices to continue to rise.