Global Investments
International Limited

FINANCIAL NEWS - JUNE 2003

• US equities soared to highest in a year

• European shares gained on dollar rebound

• Bonds fell on signs of stronger US growth

• USD fell to record low vs euro; ended higher

The S&P 500 Index gained for a sixth week in seven, after surveys on Midwest manufacturing and consumer confidence boosted optimism that the economy is reviving. The S&P 500 ended the week at an 11-month high, while the Nasdaq Composite Index jumped to its highest close since May 31, 2002. Since March 11, the S&P 500 has rallied 20% and the Nasdaq has soared 26%. Almost 1.7 billion shares traded on the Big Board, an 18% increase over the three-month daily average. Some 2.2 billion shares changed hands on the Nasdaq, marking the busiest trading in more than half a year.

Gains in stocks accelerated after the National Association of Purchasing Management-Chicago's factory index rose to 52.2 in May from 47.6 in April. Readings above 50 indicate that business is improving. The survey suggests the economy is gaining momentum after the end of the Iraq war. The University of Michigan's April consumer confidence index rose to 92.1 in May, the highest in a year, compared to a reading of 86 in April. A Commerce Department report showed personal spending slipped 0.1% last month. On the other hand, the March number was revised to a 0.8% rise from 0.4% reported previously.

10-year Treasuries fell for the first week in four, due to stronger than expected government and industry reports curtailed expectations that the Federal Reserve would cut interest rates soon. T-10 yields had fallen more than 50 basis points in the past month after Fed policy makers said a substantial drop in the pace of inflation may further slow the economy. Some investors interpreted the remarks as a sign that the Fed was concerned about a decline in prices, or deflation. Such concerns had sent yield on the benchmark 10-year bond to a 45- year low of 3.29% on May 22.

Europe's benchmark stock indices recorded their biggest weekly gains in eight, paced by companies that do business in the US, amid signs the world's biggest economy is accelerating faster than Europe. The Stoxx 50 Index advanced 2.7% for the week, the steepest since it added 3.6% in the five days ended April 4. The Stoxx 600 rose 2.8% last week and gained 0.9% for the month of May. Shares of the region's biggest companies also benefited from optimism that the dollar will have further to rise, hence boosting the euro value of their profits.

European bonds had their first month of gains in three, with the 10-year bund having its best month in 2½ years, as expectations of a cut in interest rates and slowing inflation boosted demand for government debt. On Monday, 10-year bund yield hit 3.61%, the lowest since 1990. Policy makers, including ECB Chief Economist Otmar Issing and ECB Vice President Lucas Papademos, signaled they may support lower borrowing costs as the euro's 12% rise against the dollar this year hurts exports and helps ease inflation. Consumer price growth in the euro area slowed to 2.1% in April, down from 2.4% in February, a 12-month high. This is close to the European Central Bank's upper limit of 2%, making it easier for policy makers to cut the borrowing cost.

Japanese stocks rose for the week, with the Nikkei 225 Stock Average registering its best month in four years. Japan's leading index rallied 7.6% in the month of May. Exporters such as Sony Corp gained after the yen fell against the dollar. The world's second-largest consumer electronics maker adds between 6 billion yen ($48 million) and 8 billion yen in annual operating profit for every 1-yen drop against the dollar. Shares of Sony rose 4.6%. Computer-related stocks as a group accounted for almost half of the Topix's advance.

Taiwan's TWSE Index climbed 4.7%, its fourth weekly gain and the largest this year. Taiwan Semiconductor Manufacturing Co led the advance after a US consumer confidence index climbed to a six-month high, boosting optimism for overseas sales. The chipmaker said it will increase production on the back of rising received orders, and that it will use more than 85% of its factory capacity between May and August. South Korea's Kospi index ended the week 3.6% higher. Credit-card related companies paced gains as they signaled they will take steps to improve their cash flow.

Hong Kong's Hang Seng Index climbed for a fifth week, up 2%, after the World Health Organization on May 23 lifted its advisory against travel to the country as the number of SARS victims dropped. It was the index's first monthly gain since November. Shares of Cathay Pacific have climbed 17% since its April 14 low. Shangri-La Asia Ltd, which has hotels in China and Hong Kong, has rallied 11% from its April 25 low.

The dollar posted its first weekly gain versus the euro since early April after President George W Bush said he supports a "strong dollar". Demand for dollars also rose on signs that the US economy may be accelerating and raising speculation that the European Central Bank will cut interest rates as soon as next week to spur that region's economy. On Tuesday, the dollar fell to an all-time low of $1.1933 against the euro. The dollar also got a boost against the yen after Bank of Japan figures showed it sold 3.98 trillion yen ($33.5 billion) in May, a record amount, to stem its rise. The previous monthly record for BoJ currency sales was 3.21 trillion yen in September 2001, when the dollar fell following the terrorist attacks.

Gold futures in New York had their biggest drop in almost two months on the back of the dollar's gain. A higher dollar means higher costs for the metal for overseas investors. Gold had climbed more than 9% in the month of May as the US currency slid, making the dollar-priced metal cheaper for buyers in Europe and Asia. Earlier this year, gold rallied to a six-year high of $ 390.80 an ounce as investors bought the metal as a haven from possible disruption to financial markets. Prices dropped to a four-month low after US-led forces ousted Iraqi leader Saddam Hussein. Since the low reached on April 8, gold has moved almost in lockstep with the euro's performance against the dollar.

Crude oil rose for the week, partly led by natural-gas futures, which posted a 2.2% weekly gain in New York as hot weather in Texas and the Southern Plains spurred cooling demand. Dallas will likely soar to 103 degrees Fahrenheit (39 degrees Celsius) over the weekend. The surge should be short-lived though, as forecasters expect temperatures will fall back to normal in a week's time.

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