Global Market Overview

1. Global Market Overview • In spite of rising prices for semi-conductor stocks around the world, most major markets fell during the week. Yields on 10-Year bonds rose by 20 basis points in most countries. • The US$ slipped against the Yen, but rose against all other major currencies. • OPEC’s decision to lift production by 700,000 daily had little impact on the oil price, which remains above US$30/barrel. • Because some OPEC countries are already exceeding their quotas and some are unable to increase output further, the true increase in production should be around 300,000-350,000 barrels per day. • Daily global production of oil is around 77mn barrels. • USA/Canada • Investors remained sidelined in advance of the forthcoming meeting of the Federal Reserve’s Open Markets Committee. The Dow Jones Industrial Average, S&P Composite and Nasdaq Composite slipped by 0.9%, 1.6% and 0.4% resepctively. The Russell 2000 index dropped by 0.6%. • Honeywell’s stock price dropped by 18% after the company issued a profits warning in relation to 2Q00. • The stock price of Amazon.com slumped by almost a fifth following the publication of cautious reports on the company by Lehman Brothers and widely-followed Morgan Stanley Dean Witter analyst Mary Meeker. Other major online stocks such as Yahoo! and Ebay also retreated. • Thanks to a reduction in imports for the first time in 16 months, the US trade deficit for April slipped 0.4% to US$30.44bn. • AT&T said that it would spend US$3.3bn to buy cellular companies in California and Texas. These purchases will lift the number of AT&T’s subscribers from 10.0mn to 11.3mn. • Drugs giant Pfizer completed its US$116bn acquisition of Warner-Lambert to form the world’s largest pharmaceuticals company. • Texas Instruments announced the purchase of Burr-Brown, a leading maker of computer chips that convert analogue signals into digital signals, for US$7.6bn. The combined group will the world’s second-largest supplier of such converter chips. Separately TI bought Alantro Communications, a wireless technology company, for US$300mn. • CNH Global, the world’s second-largest supplier of farm equipment, said that it expects to post a loss for the full year: low prices for many agricultural crops are depressing demand for farm machinery. • Gold mining company Newmont agreed to buy Battle Mountain Gold for US$542mn. • Investment manager Alliance Capital Manager announced the purchase of Sanford Bernstein for US$3.5bn in cash and stock. • Goldman Sachs’ investment banking, trading and asset management contributions contributed to its higher-than-expected US$755mn net income for 2Q00. Morgan Stanley Dean Witter’s 2Q00 net earnings rose 27% and would have been higher but for losses on its venture capital and private equity portfolios. • ConAgra, a major food company, agreed to buy International Home Foods for US$1.6bn and the assumption of US$1.3bn in debt. IHF’s brands include Bumble Bee tuna, Chef Boyardee ravioli and Libby’s Vienna sausages. • The board of textbook publisher Harcourt General put the company up for sale for over US$5bn. • Canada’s Husky Oil, the integrated oil company that is controlled by Hong Kong super-tycoon Li Ka-shing, announced the acquisition of Renaissance Oil for C$3.0bn in stock and/or cash. • Nortel Networks and JDS Uniphase led Canada’s TSE-300 composite down by 0.2% over the week.

2. UK • The FTSE 100 index slipped by 2.2% on low volumes in a week filled with distractions such as racing at Royal Ascot and England’s loss to Romania in the Euro 2000 football championship. • Investors were unsettled by the minutes of the previous meeting of the Bank of England’s Monetary Policy Committee on 6-7 June. These showed that three of the nine Committee members had advocated a 25 basis point rise in the key interest rate. • The UK’s trade deficit rose to £1.6bn in April as imports rose to a record high. • Global liquor group Diageo said that it would sell 20% of its Burger King hamburger chain by way of an IPO. This deal would permit Diageo to sell the rest of Burger King, which is worth around US$2bn in total, after 2002 in order to avoid a large tax charge. • Independent News and Media said that it would float a part of its stake in mobile phone information provider iTouch on the London Stock Exchange. • Halifax bought the UK credit card business of the USA’s Bank One. The purchase will expand the number of Halifax’s credit card customers from 1.2mn to 1.4mn. Halifax hopes to double the size of its credit card business by 2004. • Continental Europe • Slippage in Deutsche Telekom and the larger banks contributed to the 1.6% fall in Germany’s DAX. Advances by France Télécom and STMicroelectronics boosted France’s CAC-40 index by 1.4%. • The Ifo survey of business confidence in Western Germany rose from 101.2 in April to a higher-than-expected 102.1 in May. Italian GDP rose by 3% year-on-year, or much faster than expected, in 1Q00. • Deutsche Telekom successfully raised €15bn in its global offering, which was three-and-a-half times oversubscribed. • As anticipated the European Central Bank kept its key repo rate unchanged. Headline CPI inflation in May was 1.9%, as it had been in April. “Core” CPI inflation slipped from 1.3% to 1.1%. • French advertising group Publicis bought the UK’s Saatchi & Saatchi for US$1.7bn. • German software company Brokat said that it would buy Blaze Software and GemStone Systems in two all-stock deals worth US$831.7mn in total. • The Norwegian government formally launched an auction for Christiania Bank, in which it holds a 35% stake. Finnish/Swedish banking giant Merita Nordbanken has already offered NKr24.3bn (US$2.8bn) for Christiania Bank. • Norway’s Norsk Hydro sold its UK oil and gas interests to Conoco of the US for US$540mn. Finnish energy group Fortum said that it would sell its power generation assets in the UK and Ireland as it plans to focus on Northern Europe. • France’s CDC Asset Management bought Nvest, a US investment management group with 18 separate operations, for US$1.9bn. • Swedish group Industri Kapital agreed to buy a 51% stake in process engineering company Alfa Laval for US$1.5bn in Scandinavia’s largest-ever management buy-out. • Swedish telecommunications group Telia bought a 36% stake in Norway’s second-largest telecommunications company NetCom, and options on an additional 15%. TeleDanmark, which is also bidding for NetCom, said that it was not interested in selling its 40% stake to Telia. • Spanish power group Endesa agreed to pay €400mn to buy two power and gas companies in Eindhoven in the Netherlands. • Finland’s Metso bought Swedish company Svedala for Skr9.1bn (US$1.1bn) to create one of the world’s largest suppliers of equipment to the engineering, construction and mining industries.

3. Japan • Strong gains by leading makers of computer chips such as Fujitsu, NEC and Hitachi boosted the major stockmarket indices. The Nikkei 225, the Topix 100 and the TSE 2nd Section indices rose by 4.0%, 4.0% and 1.9% respectively. • Italian broker MTS announced that it is joining forces with 14 of the largest traders in Japanese Government Bonds to set up a new electronic dealing system. • In its report for June, the Economic Planning Agency noted that, thanks to improving conditions in the business sector, “moves towards a self-sustained recovery are gradually becoming more pronounced.” • Bank of Japan Deputy Governor Sakuya Fujiwara hinted that the central bank is moving towards ending its Zero Interest Rate Policy. • Private US investment group Carlyle said that it would launch two new funds that will concentrate on opportunities in Japan. The funds will have combined assets of around US$1bn. • Asia Pacific ex Japan • Falls in the major banks, developers and telecommunications giant China Telecom (HK) contributed to the 4.2% drop in the Hong Kong’s Hang Seng index during the week. In Singapore the Straits Times index rose by 1.1%. • Major computer chip companies such as Samsung Electronics and Hyundai Electronics led South Korea’s KOSPI 2.6% higher. Rises in the leading electronics stocks in Taiwan were not sufficient to offset the effects of concerns over deteriorating political relations with China: the Taiwanese stockmarket dropped by 1.7%. • China Unicom, that country’s second-largest telephone company, successfully raised US$4.9bn in Hong Kong’s second-largest IPO ever. • The stock price of South Korean steel giant POSCO fell by 5.4% following the indefinite postponement of the sale of ADRs. • Booming sales of chemical products and computer chips caused Singapore’s non-oil exports to grow by 15.6% year-on-year, or twice as much as expected, to S$9.4bn (US$5.4bn) in May.

4. Other Emerging Markets • The decision by the central bank of Brazil to cut its key Selic interest rate from 18.5% to 17.5% boosted that country’s stockmarket. The Bovespa index rose by 3.4% over the week. • Nervousness ahead of next month’s presidential elections, and in face of softness in the Peso, contributed to the 0.4% drop in Mexico’s IPC. Argentina’s Merval index slipped by 1.9%. • Brazil’s National Convention of Assemblies of God said that it is talks to acquire the financially troubled airline VASP. VASP, which had debts of US$1.8bn, had to abandon all but one of its international routes earlier this year. • South African financial services group Old Mutual agreed to buy US fund group United Asset Management for US$1.5bn. The deal lift’s Old Mutual’s assets under management to US$275bn. • South African diamond giant De Beers said that 1H00 sales of uncut gems rose 44% to a record US$3.5bn thanks to strong demand in the USA. • The South African Finance ministry blocked the proposed merger of financial services groups Nedcor and Stanbic on competition grounds. • Investors were unsettled by the Turkish government’s announcement that it would levy VAT on future and past sales of telephone licenses. The aim of this decision is to boost tax revenue in accordance with the US$4bn standby agreement with the IMF. • Link Egypt and InTouch agreed to merge. The resulting group will be Egypt, and the Arab world’s, largest Internet Services Provider with 100,000 subscribers. • The Czech government sold the assets and liabilities of failed bank IPB to CSOB, another Czech bank. Following the deal, CSOB will be one of the largest banks in Central Europe. The government will cover IPB’s losses, which are at least Kc50bn (US$1.32bn). Nomura Securities, previously the largest shareholder in IPB has apparently lost its investment. • Poland’s Monetary Policy Council kept its various interest rates unchanged at 17.5%-21.5%. However, it warned that the government should “substantially” tighten fiscal policy in 2001 in order to curb the current account deficit. • Bank Austria paid US$76mn to lift its stake in Polish bank PBK from 43% to 57%.

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