Global Investments
International Limited

This Monthly Investment Bulletin should be read in conjunction with the principal brochure(s) for the relevant product(s). Please refer to 'Important information' at the end of the bulletin.

Market reaches medium-term high
The UK stock market traded sideways in January, although towards the end of the month it broke a fresh two-and-a-half-year high in local terms; adjusted for US dollars, the FTSE All-Share Index fell 0.5%. UK equities remain underpinned by robust company numbers - the quarterly earnings season featured few negative surprises - and ongoing merger and acquisition activity. Investor sentiment found further support from the consensus that interest rates had peaked for the current cycle.

Sentiment overshadows improving outlook
A reversal of the bullish sentiment that fuelled an equity rally in December drove the S&P 500 Index 2.4% lower in January. A recovery of the oil price and further uncertainty over foreign policy in the Middle East prompted investors to sell down equities, despite a robust company earnings season. The Federal Reserve nevertheless stated that the economic recovery is 'entrenched', thereby increasing speculation of an imminent series of interest rate hikes. We believe the strong performance of many US companies is now starting to justify their relatively expensive valuations.

Raft of negatives temper outlook
Profit taking after a buoyant December reined back the European equity market in January. In US dollar terms, the FTSE World Europe ex UK Index fell by 2.6%. The ongoing strength of the euro did little to soothe the plight of exporting companies, while the  domestic economy battled against the headwind of recovering oil prices and a further deterioration of the employment situation in Germany. The prospect of earnings growth slowing in 2005 may lead us to adjust our bullish outlook.

Still among our favoured areas for investment
In January, Asian equity markets built modestly on their December gains. Over the month, the MSCI Asia Pacific ex Japan Index rose by 0.7% in US dollars, with returns being driven by the continued strength of economic growth in China. In Japan, the TOPIX lost 1.6% in dollar terms as investors used the opportunity to crystallise profits. We remain optimistic about the prospects for Asian equities in 2005 based on attractive valuations and superior growth potential.

High yield remains our preferred bond asset class
Global bonds delivered disparate returns in January. In the UK, the FT Actuaries All Stock Index fell by 2.0% in US dollar terms as inflation numbers came in a little higher than expected. US Treasury prices, however, shrugged off the prospect of interest rate hikes to post a modest gain. High yield bonds - which remain our favoured fixed interest asset class - started the month in lacklustre form, but recovered well on the back of surging demand.

Dividends declared in the past are not necessarily a guide to the future. The guaranteed investment returns are the current returns available to investors holding the funds for the required term. The guaranteed investment returns are declared in the year of the investment and only apply in respect of the first 10 years of your investment or until the maturity date, if earlier. The interim and bonus dividend credited during the period from policy commencement to the 10th policy anniversary or maturity date if earlier will not be less than the guaranteed investment returns. For full details of the terms and conditions governing the Guaranteed Accumulation funds, please refer to the 'Investments -Your guide' booklet, a copy of which is available on request. The guarantor is Zurich International Life Limited.

Source: Zurich International. Figures based on bid prices on the 1st day of each month.
Note: Past performance for all our funds is not necessarily a guide to future performance.