Global Overview

Whilst economic conditions undoubtedly remain difficult worldwide, we have, with the exception of Japan, been encouraged by global equity markets ability to show positive returns during the quarter under review.

Corporate earnings in the US, still the world's foremost economy, have generally fared better than most analysts expectations, and if these improvements can be sustained, then this bodes well for the country's main trading partners.

Equity valuation levels have generally retreated to more reasonable levels, and the balance sheets of companies which have weathered the recession are in reasonable shape as a result of cost cutting and much reduced inventory levels.

The tensions in the Middle East have undoubtedly weighed heavily upon investors' minds during the last year, however, if the situation escalates into full conflict, we do not expect this to be protracted. If one reviews the behaviour of markets following the gulf war, one can see that the greatest stock market declines were seen prior to, rather than after, the conflict began. We believe that the gradual deterioration in confidence as a result of the escalation may well prove to mirror this historical precedent.

We therefore look forward to a continuation of the recent market performance as we head into 2003, albeit that, with interest rates remaining at near record low levels, growth expectations for world stock markets have been reduced to more realistic, long term average, levels.

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