Chinese stocks are among the world's best investments because the nation's economic growth is poised to exceed forecasts, according to Barton Biggs, who runs New York-based hedge fund Traxis Partners LP. Biggs said the US economy rebound is "in place" and may take the form of a so-called U-shape recovery, which may help the Standard & Poor's 500 Index climb 11% to 1,000 or higher this year. Shares in Asian markets including China and Hong Kong are also attractive after having retreated from their highs this year, he added. "The emerging markets, particularly Asia, are the growth area of the world and they're emerging from the financial crisis faster than any other part of the world," said Biggs. China's economy is expected to grow 8% this year, compared with a 2.5% contraction in the US, according to economic forecasts compiled by Bloomberg. "In terms of China, GDP growth is going to be 2 to 3 percentage points higher than the consensus," he said.

Singapore's government raised its economic forecast for 2009 as gains in construction and pharmaceutical output lifted the nation from its deepest recession since independence in 1965. GDP will shrink 4% to 6% this year, less than an earlier forecast for a contraction of as much as 9%, the trade ministry said in a statement on Tuesday. The economy expanded an annualised 20.4% last quarter from the previous three months, the first growth in a year. "The Singapore economy is back, and back with a vengeance," said Robert Prior-Wandesforde, a senior economist at HSBC Holdings plc in Singapore.

Latin American stocks are poised to rebound after a six-week slump as the US economy grows and earnings recover, according to Citigroup Inc. strategists. The MSCI Latin America Index has fallen 10.6% since reaching its high for the year on 1 June. "The correction in regional equity markets has reached our expected 10-15% range," Citigroup strategists Geoffrey Dennis and Jason Press wrote in a note. "Although the mood has turned sour on worries over the timing of economic recovery, we see little more downside from here and expect regional markets to break out to the upside again later this summer." Dennis, who said Latin American stocks were expensive on 1 June, now predicts as estimated total return of 24% for regional equities by the end of the year as the US economy resumes growing in the third quarter.

Oil put in its worst performance since January last week as supply is well above normal levels. A new consensus seems to be emerging that supply needs to be driven down before the price can go up again. While that is good news for consumers and businesses, with the world's governments clearly relieved, it is not such good news for investors. By Friday WTI oil was down 55 cents to USD 59.34, having fallen 11% in a week. On Wednesday, OPEC cut its oil demand forecasts. It now does not expect demand to rise back to 2008 levels until 2013. The strongest growth in demand is expected in developing countries and regions, in particular China and South Asia.

Spotlight on Standard & Poor's Fund Services' Annual Review of Emerging Markets

Most fund managers believe emerging markets will be the key economies that lead the world out of recession, according to Standard & Poor's Fund Services' annual review of global emerging markets, Latin America and the EMEA region (Europe, the Middle East and Africa).

Roberto Demartini, lead analyst, said fund managers and stock pickers with a "growth at a reasonable price" (GARP) approach felt now was their time to perform. He said this group believed that, after a low-quality rally, which many fund managers compared with the market conditions of 2003, the focus would shift towards quality growth names trading at attractive valuations. Demartini added that, while many managers were confident in the so-called "decoupling theory" last year, very few would be willing to name it now.

S&P said most survey respondents believed that, while the "essence" of the decoupling theory lied in diverging fundamentals between the developed and emerging worlds, the correlation between macroeconomic trends and stock market behaviour "was not perfect over the short run". According to S&P, managers see this as supporting the decoupling theory. Demartini said, "Looking forward, managers' view is that the market will be led more by fundamentals and earnings, as opposed to flows or sector rotation."

One manager who is particularly bullish on emerging markets is Bryan Collings, manager of the Ignis Hexam Global Emerging Markets fund. He said most UK and US investors had just 5% emerging markets exposure in their portfolios despite "sound structural drivers" and "impressive market performance". "It makes no sense to have so low an allocation to such a large and important asset class," he added.

Collings said there were a number of reasons why emerging markets were so attractive, including their growing number of consumers and favourable demographics. Emerging markets represent approximately 75% of the world's land mass and house more than 80% of the global population. Most of the future population growth is expected to be in emerging markets, where the population is expected to grow five times as fast as developed countries.

By 2030, more than one billion people in emerging markets are forecasted to join the ever-increasing consumer middle class. Currently, personal consumption in China accounts for only 37% of GDP compared with more than 60% and 70% in Europe and the US, respectively.

The outlook for emerging markets is "far more optimistic" than for developed economies as growth picks up, said investor Marc Faber, who advised investors to buy gold before its eight-year rally. "We are living through major changes in the world," said Faber, the publisher of the Gloom, Boom and Doom report. Emerging markets such as China are becoming more significant to the global economy, and "I don't think this will be reversed," he said on Tuesday at an AsianInvestor magazine forum in Seoul. The MSCI Emerging Markets Index has jumped 35% since the end of March, headed for a record quarter after inflows from investors increased substantially and stimulus plans from China to Brazil bolstered confidence. That compares with a 21% increase in the developed market MSCI World Index. No developed markets rank among the year's 10 best performers out of 89 global indexes, according to Bloomberg. Peru and China have led gains.

Oil, copper and emerging market stocks rose as evidence that the worst of the global recession has passed fanned appetite for high-yielding assets. Crude oil advanced as much as 2.6% in London early on Tuesday, rising to the highest level in eight months. Crude oil for August delivery rose to USD 73.38 a barrel on the New York Mercantile Exchange. Copper for three-month delivery on the London Metal Exchange gained 1.4% on optimism industrial demand will rebound as the global economy recovers. Copper has risen 68% this year. The MSCI World Index of 23 developed nations added 0.4% on Monday, extending its biggest quarterly gain since 1987.

The dollar declined against 13 of the 16 most traded currencies before a US government report today that economists say will show consumer confidence rose to a nine-month high in June. The dollar weakened to USD 1.4104 per euro in London earlier on Tuesday from USD 1.4083 in New York on Monday. The dollar depreciated to USD 1.6607 per pound from USD 1.6567, after sliding to USD 1.6743, the weakest level since 21 October last year.

Deutsche Bank AG, Germany's biggest lender, raised its forecast for global growth next year, predicting that the world economy will expand 2.5%, compared with a March forecast of 2%. Increased demand for assets with higher returns is fuelling gains in oil and reviving capital flows into emerging markets, Bank of America-Merrill Lynch said on Tuesday. "Risk-asset markets have shaken off their lethargy of last week to begin a renewed push higher," Steven Pearson, a strategist at Bank of America in London, wrote in a report. "It is not clear whether market participants are starting to contemplate the prospect of a quiet summer or are simply becoming more comfortable with the macro outlook."

Japanese industrial output increased 5.9% in May compared with the month before, the third consecutive monthly climb, according to official data. The rise last month was the same as April's revised figure, though less than analysts' forecasts of 6.9%. The output of cars, mobile phones and electronic devices was particularly strong as firms started to reverse earlier cuts in stock levels. But analysts predict output could slow again. "Production has been rebounding sharply in response to earlier drastic cuts but the momentum is likely to slow in the months ahead," said Hirohi Watanabe, an economist at the Institute of Research in Japan.

The eurozone's annual rate of inflation turned negative in June for the first time since the single currency was introduced in 1999. Prices in the eurozone fell 0.1% in the past year, Eurostat said. The inflation rate had been 0% in May. Inflation has been dragged down by lower energy and food prices, and by falling demand for goods from companies and household.

Spotlight on the investment opportunities from a changing climate

Climate change will alter the shape of the global economy over the coming years. As a result there is an expectation the environmental technologies sector will benefit and grow, providing attractive, long-term investment opportunities for global investors.

It is important to note, however, it is not only the renewable energy sector that will benefit from the changes required to deliver a low-carbon economy. Companies emerging from sectors, such as energy efficiency, water infrastructure and pollution and waste control also have contributions to make in addressing not only climate change, but also wider environmental threats facing society. Growth in this sector will, in part, depend on access to capital by companies emerging in all of these areas.

Additionally, it is necessary for the global economy, including governments, to facilitate capital investment flows into the environmental markets arena. Today, investors are already seeing the start of this evolutionary phase, with governments across the globe pledging high proportions of their economic stimulus packages towards environmental technology investment.

The focus on climate change and its implications in terms of assessing economic cost and portfolio risk is being highlighted increasingly by political and industry commentators worldwide. This includes two of the world's most powerful economies, the US and China, whose pledges in this field have made it clear that addressing the impact of climate change is critical to economic growth and prosperity, despite current market conditions. Incentives derived from economic stimulus packages are expected to play an increasing role in this growth over the coming years.

As many of the drivers of the environmental markets catch political and public attention, such as energy security and supply, water scarcity and disruptive weather patterns from a changing climate, those companies and sectors providing solutions to these issues will attract the interest of global investors. Attractive returns may be achieved from the investment opportunities emerging from the leading companies in these sectors.

This increased interest will challenge the industry and index providers to develop to tools to reflect this growth and suit the needs of a variety of investment strategies. The challenge for the next decade is to continue to build on these many successes. Global investors will have a key role to play in decarbonising economies, rewarding companies that adopt sustainable and responsible business practices.

For all the hand-wringing over the dollar's slide, the expanding US deficit and the nation's AAA credit rating, the bond market shows international demand for American financial assets is as high as ever. The Federal Reserve's holdings of Treasuries on behalf of central banks and institutions from China to Norway rose by USD 68.8 billion, or 3.3%, in May, the third most on record, data compiled by Bloomberg show. The Treasury said bidding from foreigners was above average at its USD 101 billion of note auctions last week. US government securities have fallen 4.3% so far this year, the worst performance since Merrill Lynch & Co began tracking returns in 1978, as so-called bond vigilantes drove up yields to punish President Obama for quadrupling the budget shortfall to USD 1.85 trillion. The purchases by foreigners show that, at least for now, there's little chance of buyers abandoning the US or threatening the dollar's status as the world's reserve currency.

China's manufacturing expanded for a third month, adding to evidence that its economy is on the road to recovery. The official Purchasing Manager's index was at a seasonally adjusted 53.1 in May after registering 53.5 in April, the Federation of Logistics and Purchasing said on Monday in Beijing. A reading above 50 indicates an expansion. "The Chinese economy is well on track for recovery and economic growth is picking up steam," said Lu Ting, an economist at Merrill Lynch & Co in Hong Kong. "The PMI may trigger a rally for asset prices, especially commodity prices."

China's manufacturing expansion has helped drive oil to its highest price since November as it signals that fuel demand in the world's second-biggest energy consumer will increase. Oil climbed as much as 1.8% after the US dollar fell to its lowest against the euro since December, heightening the need for commodities to hedge against inflation. "All the attention is on the weaker dollar and macroeconomic sentiment," said Christopher Bellew, senior broker at Bache Commodities Ltd in London. "The market has advanced a long way on flimsy fundamentals and may pause for a breath or see a setback now." Crude oil for July delivery rose as much as USD 1.98, or 3%, to USD 68.29 a barrel on the New York Mercantile Exchange. Crude had its biggest monthly gain in a decade in May, surging 30%, after OPEC left output unchanged on signs the global economy is recovering and fuel demand will increase.

Poland posted the European Union's second-fastest economic growth for the first quarter so far as investments in buildings and machinery and household spending kept the nation from slipping into eastern Europe's recession. Gross domestic product expanded an annual 0.8%, the Central Statistical Office said in a preliminary estimate last week in Warsaw, the second-best result of the 20 EU countries that have reported first-quarter GDP, behind Cyprus. The 16-member euro zone contracted 4.6% in the period.

Zimbabwe may begin using the South African rand as its currency this year, the Johannesburg-based Times newspaper reported, citing Finance Minister Tendai Biti. The southern African nation is considering joining the rand monetary union, continuing with the regime of multiple currencies, or resuming use of the Zimbabwean dollar and redenominating it either with either the rand or the US dollar.

Spotlight on the euro fixed income market

The release of the gross domestic product data for the first quarter of 2009 showed the eurozone's largest contraction on record at 2.5%, with the region's more export-orientated economies exhibiting particular weakness. In Germany, for example, growth slowed by 3.8%, the sharpest downturn since reunification in 1989. Meanwhile, inflation remains well below the European Central Bank's (ECB) 2% target. The consumer has remained under pressure and the unemployment rate has escalated, reaching 8.9% in March, with Spain showing particular weakness.

Growth is now forecast to contract by around 0.1% in 2010 and inflation to remain well below 2%. More recent indicators seem to suggest business confidence may be improving with purchasing manager indices indicating some recovery in manufacturing orders. Nevertheless, we are still in the early stages of the downturn in Europe.

The ECB acknowledges the labour market will continue to deteriorate for quite some time. In spite of the ECB's gradualist approach and clear concerns over how low interest rates can go, further policy easing is likely. In addition, the ECB has announced it will be embarking on unconventional stimulus measures, to be detailed at its June meeting.

Intra-euro country performance has remained a key theme so far this year. Countries such as Austria have come under heightened pressure in this environment due to concerns over exposure to the banking sector in eastern Europe. Ireland traded at particularly wide levels due to concerns surrounding the outlook for growth and public finances. In addition, the market has been affected by anticipation of downgrading activity that emerged at the end of the first quarter when S&P downgraded Ireland to AA+ with a negative outlook. Overall, country spreads reached levels that began to price in the modest probability of a break up of the European Monetary Union, thereby creating buying opportunities among the stronger credits. However, the overshoot has partly corrected since then, with spreads being much tighter.

With little evidence of a significant turnaround in growth outlook or a medium-term inflation threat, investors should maintain a positive outlook on the euro fixed income market according to Michael Krautzberger, co-head of European fixed income at BlackRock. Looking forward, credit is expected to be a key source of positive performance for portfolios.

"While bank disintermediation is likely to increase supply, and a prolonged economic slowdown will result in a higher level of defaults, corporate bonds are pricing at an excessively pessimistic economic outlook and elevated levels of default risk," said Krautzberger. He continues, "It is true we are now entering a period where defaults may pose a potentially higher risk for investors. However, the additional return investors derive from corporate bonds more than adequately compensates for that risk, particularly when in some cases they are earning 8% or 10% as a yield-to-maturity. In addition, when you look at the period since 1970, average levels of default for investment grade bonds have been very low, at around 0.8% over any five-year period."

Krautzberger adds that areas of the market investors should look to are government guaranteed financials and utilities. As governments take the necessary steps to guarantee liquidity, replenish capital and restore confidence there is potential for a recovery in financial corporates and value is likely to emerge in selected names, particularly in the senior debt and lower tier-II areas. In a securitised area, investors should look at high-quality asset-backed securities and commercial mortgage-backed securities, focusing on names where there is greater cash-flow clarity.

If you have a question, want to arrange for a free financial review or just want further information I can be contacted on +33 (0)325461631, via my website www.financialexpat.com or via e-mail steven.grover@spectrum-ifa.com  

Libor fell to 0.66% last week from 4.82% on 10 October. At the same time, the gap between the highest and lowest accepted quotes reported by 16 banks that contribute to the London-based BBA for its calculation of Libor has averaged 7.6 basis points in May, according to Citigroup Inc. That's up from 4.9 basis points in April and 1.5 basis points in the six months before Lehman's bankruptcy. It widened to 9 basis points on 14 May, the most since 13 December. "The dispersion of Libor submissions seems to be exceptionally wide," said Marc Chandler, the global head of currency strategy at Brown Brothers Harriman & Co in New York. "There is potential for bifurcation of the financial system between the banks perceived to be healthier than others."

Neptune's founder and manager of the Neptune Russia & Greater Russia fund, Robin Geffen, maintains the view that Russia is the Bric country with the most potential. He believes the move upwards in the oil price above USD 55 a barrel is beneficial for Russia's macro picture, while the government's quick action in getting liquidity back through the system is proving highly successful. He said, "The response by Russia's government was faster than the UK or the US, which is really paying off. Russia's employment levels have also stayed high so there has been no cut in consumer spending as a result of the credit crunch. What also makes the country look attractive is that most people expect China will have a V-shaped recovery. With Russia as its next door neighbour, it could be a major beneficiary of that. To make the case even stronger, commodity prices appear to have bottomed out in a number of places, which is again very positive for the Russian stock market."

India's decisive election result should speed up economic reform, says Hugh Young, managing director of Aberdeen Asset Management Asia. Young points out that India's economy has not been immune from the effects of the global economic troubles, but has so far weathered it better than most. "Growth is likely to fall to around 4% this year from around 8% in 2008, but in the context of conditions elsewhere is impressive", he says. Compared to most other emerging countries, he points out, India's economy is more domestically orientated. "Its export sector is more related to provision of services, such as call centres and software, than it is to the manufacture of goods, demand for which has been so badly battered. Furthermore, India's manufactured goods are in defensive areas such as pharmaceuticals, rather than more vulnerable sectors like consumer electronics and cars. Overall, we expect India's growth to hold up reasonably well, and think that its stockmarket presents good long-term investment potential at current levels."

The British pound rose, surpassing USD 1.60 for the first time in almost seven months, as optimism the worst of the financial crisis is over stoked demand for assets denominated in the currency. The pound rallied versus the euro as the FTSE 350 Banks Index advanced 2.2.%. The yen fell against higher-yielding currencies such as the Brazilian real and Australian dollar as a rebound in US consumer confidence drove stocks higher. The pound rose as high as USD 1.6008 before trading at USD 1.5970 in London. It appreciated to 87.45 pence per euro, from 87.81 pence. The yen weakened to 95.35 per dollar, from 95.03 yen. Investors are betting the pound's 19% decline versus the dollar in the past 12 months may have left it cheap given the optimism over government stimulus packages pulling the world economy around.

Spotlight on Investing in Oil

This week future dated Brent crude oil climbed above USD 60 a barrel for the first time since November. Fund managers certainly seem to be looking more favourably at the energy sector and it is now the second most popular sector among institutional investors.

Alistair Syme at Nomura reckons the oil price is going to rise above inflation over the next two years, to USD 75 in 2011. He says share prices are not yet reflecting this. Keith Morris, analyst at Evolution, cautions that the oil market is particularly difficult to follow at the moment as news on demand and supply is out of date as soon as it is published. But Morris sees oil averaging at around USD 50 this year and USD 70 thereafter.

So what are the alternatives for investing in oil?

Tim Cockerill, head of research at IFA Rowan PLC, says one of the easiest ways to invest in oil is through an exchange traded fund or ETF. ETFs are basically a shared investment in a fund that tracks the underlying assets or index. An oil ETF simply reflects the underlying price of oil. Cockerill points out there are a number of ETFs based on the oil price which offer both dollar and sterling exposure to the oil price. ETFs also allow the investor to short oil, one of the few ways to benefit from falling oil prices, and some investors use the ETF to hedge their buy positions.

There are also a whole range of margin plays on the oil price, including spread bets and contracts for difference. David Morrison at GFT warns that while these offer a greater exposure for a much smaller pot of money, they also mean that the investor can end up owing much more than they originally put down. These investment tools can also be used to short the oil price.

One way of buying into the oil market is to buy shares. The oil majors remain one of the most reliable sources of income, with few commentators expecting BP or Shell to cut their dividends this year, as long as oil remains above USD 35-40 dollars a barrel. Nomura's Syme thinks that if his oil price assumptions are correct, then oil and gas integrated shares offer up to 30% upside, far more than the upside on the underlying commodity. Beyond the FTSE there are other options especially in London which attracts a majority of oil companies, providing exposure to many different kinds of projects throughout the world. Here the choice is largely between the oil services sector, which has been hit by low order books or the exploration and production sector, which often means investing in a high-risk business.

Given the specialist nature of the sector and the high levels of uncertainty, the investor may decide that not to buy shares directly and rely on the expertise of others to determine which stocks to choose. Rowan's Cockerill says there are a number of funds to choose from that offer exposure to the oil price through equity performance. "This way you are benefiting from a level of fund management, rather than relying on your own insights," says Cockerill. He suggests that if the investor is really bullish about the price of oil, they could buy both an ETF on the underlying oil price and put some money into a fund, though he cautions that the investors risk appetite and strength of commitment will be factors into how much they should invest in the oil sector. And he also warns that if the investor is considering increasing their exposure to oil, then they need to check out their existing investments. "Any UK funds will have some exposure to oil," he said. If the investor decided to put 5% of their assets into oil, they might find that through their full portfolio they actually have a much higher exposure, he explained.

Charts predict a new Asian bull market, according to Robin Griffiths, technical analyst at Cazenove Capital. "While western stock markets struggle to a rally in an overall bear market, their emerging counterparts are set to enjoy the real thing. Asia and China and emerging markets are where the new bull markets are being signalled. In the mature western markets, we're having rallies in bear markets on the classic definition," he said. "Asian and emerging markets have finished a cyclical bear market and are giving all the signs of going into a new cyclical bull market. We do indeed have some bull markets on the planet, there in places like China and India, they're definitely not in the western world. It is possible for western indexes such as the FTSE-100 to turn the current bear market rally into a bull market," he added. If the FTSE starts to make a pattern of rising highs and lows above the 200-day moving average, "most technicians around the world would accept it is now called a bull market," Griffiths concluded.

The International Monetary Fund ("IMF") is considering selling its first bonds to several developing countries to raise money to combat the global economic downturn. China and Brazil are among the handful of nations that have expressed interest in purchasing the securities, which would give member states a different way to contribute to the Washington-based fund. The IMF, an agency of the United Nations that monitors the global economy and makes loans to members, has never issued bonds. The IMF is seeking more cash to finance loans and aid to member states. Bonds would offer "flexibility," said IMF Managing Director Dominique Strauss-Kahn, and their interest would be pegged to the value of the IMF's basket of currencies, known as Special Drawing Rights or SDRs.

Russia plans to borrow money on the international market next year and may arrange loans from the World Bank to help cover its budget shortfall, Finance Minister Alexei Kudrin said. Banks and pension funds are likely to be the chief buyers of Russian bonds, Kudrin said today. Russia's budget deficit may be wider than the government's estimate of 7.4% of GDP which has been caused by an expected 30% drop in government revenue.

German consumer confidence unexpectedly held steady for a third month as slower inflation boosted household purchasing power and the recession showed first signs of easing. GfK AG's confidence index for May, based on a survey of about 2,000 people, was unchanged from April at 2.5%, the Nuremberg-based market-research company said in a statement today. Italian consumer confidence unexpectedly rebounded in April to the highest since December 2007 as the benefits from slowing inflation offset concerns about rising unemployment. The Isae Institute's consumer index rose to 104.9 from 99.8 in March, the Rome-based research centre said today. "The slowing inflation across Europe boosts consumers' available income," said Laura Cavallaro, economist at Aletti Gestielle in Milan. "On top of this, households enjoy some of the benefits coming from governments' stimulus plans and interest rate cuts."

Gold, little changed in London today, may rise for a fourth day to post its longest winning streak since December as falling equities increase the metal's appeal as an alternative investment. "As global stocks retreat on profit-taking and flu fears, gold prices could gather pace," Pradeep Unni, an analyst at Richcomm Global Services DMCC in Dubai, said. "Steady investment demand and Chinese gold appetite have added to the momentum." Bullion for immediate delivery fell 11 cents to USD 913.09 an ounce earlier today.

Crude oil fell the most in a week on concern the US economy will keep shrinking and the flu outbreak will curtail air travel. The economy in the world's largest oil consumer will continue to contract "for some time" Lawrence Summers, director of the White House National Economic Council, said yesterday. Increased output by non-OPEC producers has left the market oversupplied by about 720,000 barrels a day, Algerian Oil Minister Chakib Khelil said. Crude oil for June delivery fell as much as USD 2.90 or 5.6%, to USD 48.65 a barrel on the New York Mercantile Exchange earlier.

The same concerns that have depressed the price of crude oil have also caused the yen to rise to a four-week high against the dollar. The euro fell the most in a week against the dollar and the yen after Liberation reported that Societe Generale SA, France's third-largest bank, may post a loss after risky investments by its alternative asset-management unit. The yen strengthened to 96.54 per dollar in London earlier from 97.17 last week in New York. The yen appreciated to 127.03 per euro from 128.66. The dollar climbed to USD 1.3151 per euro from USD 1.3242.

Spotlight on water

With the yearly Earth Day celebration stretching into its fifth decade, water seems to have risen in the public consciousness as one of the planet's chief environmental concerns. There is growing recognition that this resource, which has no substitute, may turn out to be the hot commodity of the 21st century, much as oil has been for much of the past century.

The higher value ascribed to water has less to do with depletion and scarcity than cost. While there's as much water on the planet as there has ever been, cheap water is in short supply. "All the easily tapped sources have already been tapped," by damming up rivers and other methods, says Neil Berlant, lead manager of the PFW Water Fund, the only open-end mutual fund focused exclusively on water-related stocks. What remains are more expensive sources of water, from oceans, groundwater, or reclaimed used water, which require either desalination, chemical disinfectants, or other processes to be made suitable for drinking.

There's plenty of technology available to clean up water to meet increasingly strict public safety standards, but consumers will have to get use to paying higher rates to local water systems to pay for the necessary treatment. People in the developing world have long had little access to clean drinking water because of how much it costs.

Berlant predicts that water prices across the U.S. will double or triple over the next few years, though that's not as scary as it sounds because the increase will come off a fairly low base. He expects the higher cost to unleash a wave of business opportunities as people shop for products and services to improve water quality. This is compounded by the need for water of much higher purity than in the past for such sensitive manufacturing processes as the production of semiconductors, whose optimal performance depends on cleaner chips, he says.

One of the most pressing environmental issues concerns farm runoff of storm water loaded with nitrogen and other chemical fertilizer compounds and urban runoff of water full of oil and other pollutants washed off dirty streets and parking lots. Excessive runoff that can't flow back into groundwater ends up in the nearest rivers, lakes, and oceans, resulting in a profusion of algae and other plant life that suck up oxygen when they die, creating so-called dead zones that can no longer neutralise pollutants.

A wellspring of creative solutions has emerged in response to this problem, from rooftop rain gardens to permeable asphalt to underground cells that allow tree roots to grow to full capacity and thereby absorb more rainwater, but most are in the early stages of development and not yet available for investment.

The Artemis Project, a San Diego consulting firm focused on the water industry, is trying to make private equity investors more aware of opportunities in new technologies aimed at solving complex water issues. This week, Artemis launched an annual competition that will give awards to companies judged to have the most investment potential. Its top choice this year went to Scottsdale (Arizona) -based AbTech Industries, a privately held company that makes a relatively low-tech smart sponge that removes oil and grease from runoff water before it can harm large bodies of water.

Among other companies creating innovative technologies on the brink of public consciousness is BPL Global, which uses smart sensors to marry electronic devices that can measure a community's carbon and water footprints and enable better management both of water flow and energy consumption.

If the 120 international companies that the Artemis Project has identified as having promising water solutions are any indication, the tide of innovation, and investing opportunities, should continue to rise for many years to come as the world's water worries grab the spotlight.

Japan's consumer confidence sentiment rose to a five-month high in March, a sign that the recession in the world's second largest economy is abating. The confidence index rose to 28.9 from 26.7 in February, the Cabinet Office said in Tokyo last Friday. The index has advanced for three months since December when at 26.2 it was at its lowest since figures began in 1982. Prime Minister Taro Aso last week unveiled a record 15.4 trillion yen (USD 156 billion) stimulus plan that included measures to create and save jobs. Confidence among Japanese merchants rose to an eight-month high in March after the government began handing out cash to households and started discounts on highway tolls as part of an earlier package.

The euro dropped to less than USD 1.30 for the first time in a month and fell versus the yen on concern disagreement is deepening amid European Central Bank policy makers on the measures needed to combat the recession. The euro declined against eight of the 16 most-active currencies after ECB Executive Board member Lorenzo Bini Smaghi said the bank's benchmark 1.25% rate is "very close" to its floor, the Financial Times Deutschland reported. Two central bank council members said last week they may support a rate of less than 1%."It's inevitable, you're going to get disagreement on the ECB's council," said Neil Mellor, a currency strategist at Bank of New York Mellon Corp. in London. "Currency politics will be a key issue this week." The euro dropped to USD 1.2975 in London earlier today, from USD 1.3044 in New York last Friday. It earlier declined to USD 1.2967, the lowest level since 17 March. The euro fell to 128.48 yen, from 129.33 yen, after touching 128.17, the weakest since 30 March.

Crude oil fell as a stronger dollar reduced the appeal of commodities and on concern inventories will rise as the global recession reduces demand for fuel. Oil dropped as the dollar rose to a one-month high versus the euro, making crude less attractive as a currency and inflation hedge. "The fundamentals don't support a higher oil price, demand is still weak," said Thina Saltvedt, an oil analyst at Nordea Bank AB in Oslo. "Inventories need to come down before you can expect the market to balance. The oil market seems to be reacting to the dollar," she said. Crude oil for May delivery fell as much as USD 2.03, or 4%, to USD 48.30 a barrel in electronic trading on the New York Mercantile Exchange. Prices are up 9% this year. June futures were down USD 1.70, or 3.2%, at USD 50.77 a barrel.

Andrew Kelly, UK equity long/short hedge fund manager at Ignis Cartesian, has dismissed the widely accepted belief that gold is a relative safe haven in market volatility and anticipates its price falling to below USD 400 per ounce in the medium-term. Kelly said, "We believe the market consensus on gold is wrong. The attraction of gold as an investment to a large degree reflects an aversion to almost all other asset classes but this will not last forever. In most respects gold mining follows a similar pattern to other resource investments. Rising prices have boosted returns substantially, and although costs have risen to some extent, margins are now very high. We anticipate that such margins in the long term will return to more normal levels." Kelly believes the bullish view on gold has been compounded by the short-term low interest rate environment, which made a zero yield on gold less of a deterrent than normal. He said that unlike other commodities such as oil, there was no natural floor for the gold price and the only sure guarantee of making money from it would be from further price rises in the precious metal, something he thinks is highly unlikely.

Spotlight on Russian equities

Investors looking for strong returns in 2009 should consider the low valuations in the Russian equities market, according to fund manager Jupiter. Elena Shaftan, head of Jupiter's emerging European equities team said the Russian market was likely to be a strong performer this year as economic conditions improved. She said, "The factors that drove the market down last year (the devaluing rouble, falling oil prices and forced selling by over-leveraged domestic investors) have largely played out. Valuations are highly attractive, Russia is trading at a discount of about 45% to global emerging markets."

The recommendation came as Morningstar recognised Russia as the top-performing European equities category during the first quarter, with the average fund returning 8.8% over the period. Shaftan said the rouble was also likely to prove more stable after it was devalued in January, particularly if oil prices stabilise as well, increasing the level of investment in the economy. "This reduces capital outflows, particularly the speculative holding of dollars, allowing funds to flow into the real economy and creating scope for economic indicators to improve."

Shaftan said her team had increased exposure to Russian equities across their portfolios from 30% to approximately 45% at the end of March. She added, "Regional markets have started to recover, but valuations are still far from reflecting mid-term growth potential of eastern European economies. The aftermath of a financial crisis can create opportunities for equity investors, as valuations are driven to unjustifiably cheap levels relative to earnings that are at the bottom of the cycle."

But the outlook for other countries in the region was less clear, as the average fund in the Morningstar Emerging Europe ex Russia category posted losses of 16.9% during the first quarter of 2009. Shaftan said the team had avoided countries such as Ukraine and Hungary as well as the Baltic states and the Balkans, which depend more on capital inflows or exports. But a number of these countries continued to receive support from other countries to cover short-term funding gaps, she said, making them attractive markets in the long-term.

Finance ministers from the G20 group of nations have pledged to make a "sustained effort" to pull the world economy out of recession. "We are committed to deliver the scale of sustained effort necessary to restore growth," they said in a joint statement after their talks in the United Kingdom. UK Chancellor Alistair Darling said they agreed the International Monetary Fund (IMF) should be given more money and guard against protectionism. The finance ministers have also pledged to continue economic stimulus packages and low interest rates. While the US and UK finance ministers have led the call for further spending on stimulus packages, some of their European counterparts, most notably France and Germany, have urged caution. Led by Germany's Peer Steinbruck, they are concerned about the increase to governments' debt, and have said it would be best to see if the current stimulus schemes start to work before more money is dedicated.

For the first time since 2001, foreign governments and private investors are both pouring money into dollars, a sign to Barclays Capital's chief currency strategist Steven Englander that the US currency is peaking. He estimates foreign purchases of American assets have reached record levels, with individuals buying USD 133 billion a month on average since November, based on government statistics. Central banks were net buyers of Treasuries for 29 of the past 30 weeks, a streak unmatched since at least January 1983. While the dollar strengthened 24% against the euro since falling to a record low on 15 July as investors sought the safety of US assets, zero per cent interest rates and the signs the financial crisis is abating will help lead to a 13% drop in the next year, Englander said.

OPEC agreed to maintain current production quotas, concerned that a fourth cut since September risked increasing energy costs at Sunday's meeting in Vienna. OPEC will aim to complete existing production cutbacks agreed last year and will meet again on 28 May to review policy. Higher prices could further erode global oil demand, already forecast to fall by 1 million barrels a day in 2009. Today, oil fell from a two-month high in New York on speculation US stockpiles increased last week because of lower demand. "We have very high crude oil inventories in the US." Said Sintje Diek, an HSH Nordbank analyst in Hamburg. "We still have very weak oil demand. We will remain in this trading range of USD 45 to USD 50 a barrel for the coming weeks." Crude oil for April delivery fell 1.7% to USD 46.53 a barrel on the New York Mercantile Exchange today. It was USD 47.10 a barrel in London.

Exxon Mobil Corp's oil discovery off the coast of Brazil may hold enough crude to rival the nearby Tupi prospect as the Western Hemisphere's largest find in three decades. Exxon's Azulao-1 well tapped a reservoir that could contain 8 billion barrels of recoverable oil. The size of the discovery will intensify interest in Brazil's offshore region among US, European and Chinese producers amid a downturn in supply of untapped oil basins outside the Persian Gulf and Russia.

The yen fell for a third day yesterday against the dollar and the euro on speculation a Bank of Japan plan to buy government debt will spur investors to seek higher yielding assets overseas. The yen weakened to 98.11 versus the dollar today from 97.95 in New York last week. It reached 99.68 on 5 March, the lowest level since 5 November. Japan's currency declined to 127.02 per euro from 126.65. The euro traded at USD 1.2946 from USD 1.2928. The British pound climbed to USD 1.4078 from USD 1.4002 late last week.

Gold, little changed in London, may rise as falling equity markets boost demand for the precious metal as an alternative investment. Bullion is "looking back toward equity markets," for direction, said Emanuel Georgouras, a precious metals trader at Marex Financial Limited in London. "We've gone back to negative correlation with equity markets." Gold for immediate delivery lost USD 1.01 to USD 922.15 an ounce in London today. April futures fell 80 cents to USD 921.20 an ounce in New York.

Spotlight on Gold

According to the year-end edition of the World Gold Council's Gold Demands Trends report identifiable investment demand for gold, which incorporates exchange traded funds and bars and coins, was 64% higher last year than in 2007, equivalent to an additional inflow of USD 15 billion. Demand for bars and coins rose 87% over the year with shortages reported across many parts of the world. Retail investment in gold rose 396% from 61 tonnes in the fourth quarter of 2007 to 304 tons in the fourth quarter of 2008. However, it is worth remembering that, while the recent surge in demand is quite remarkable, the gold price has been rising for several years, buoyed by a greater understanding in the investment community of its unique qualities as an asset.

A study undertaken by the World Gold Council, which examines the performance of gold during recessionary periods in the US, suggests that there is no clear relationship between the changes in US gross domestic product growth and changes in the gold price. Hence, a US recession would not have negative implications on the gold price. This reflects the unique market fundamentals and sources of demand which drive the price of gold and explain gold's role as a diversifying asset.

Second, like all physical commodities, gold is an asset that bears no default risk. Holding assets in gold involves no counterparty risk and is no one's liability. Third, there is a substantial body of research to bolster gold's reputation as a protector of wealth against inflation and currency fluctuations. Gold is the asset that investors turn to when currencies fall or inflation rises threatening to devour wealth. In fact, gold offers better protection against dollar weakness than any of the other main commodities, having the strongest negative correlation. This has intuitive appeal for any investor with significant holdings of dollar biased or dependent assets.

With gold's role as a portfolio diversifier and a hedge against inflation and currency weakness, combined with its liquidity and lack of counterparty risk, there are several compelling arguments for investing a portion of a portfolio into gold. The events of the last year have shown that you must always be prepared for the unexpected, and this is where gold shines; gold plays a role of an insurance policy within a portfolio. As with all insurance policies, a safety net which should be maintained in good times as well as bad.

Malaysia's government has announced an additional 60 billion ringgit (USD 16.3 billion) in spending and tax incentives over the next two years as it predicted the nation's first recession in a decade. Malaysia is spending 8.4 billion ringgit to accelerate projects under its five-year plan and will spend 700 million ringgit on programmes to create jobs. The government will recruit 63,000 people to work in various state agencies and reduce tax for workers, said Finance Minister and Deputy Prime Minister Najib Razak. Malaysia's two plans combined are equivalent to about 10% of GDP. Singapore has spent about 8% and China over 10% on stimulus packages.

China vehicle sales rose 25% in February, the first gain in four months, after the government cut taxes for some models, helping the country extend its lead as the world's largest car maker this year. Sales of cars, buses and trucks climbed to 827,600. China has halved retail taxes on small cars and drawn up plans to give out vehicle subsidies in rural areas to revive demand after car sales rose at their slowest pace in a decade last year. "Consumers are regaining confidence because of the government's stimulus policies," said Ricon Xia, an analyst at Daiwa Research Institute in Shanghai.

Mexico replaced Brazil as UBS AG's favourite equity market in Latin America because investors have already factored in a severe recession this year. Declines this year means Mexican stocks are trading at the lowest valuations in at least 10 years, while the nation's largest companies will probably be able to return to profit by raising prices, UBS strategist Damian Fraser wrote in a report this week. Mexico's Bolsa Index is valued at 11 times reported earnings, compared with 8.7 times for the Brazilian stock index, according to data tracked by Bloomberg. "For the first time in recent history, Mexico's market multiples are in line with Brazil's, despite comprising less cyclical, more defensive stocks," the analyst wrote.

The yen and the dollar have weakened as advances in stocks have curbed demand from investors seeking refuge. The yen fell the most against the South Korean won. The pound climbed against the euro after UK housing sales fell to their lowest level since 1978. The euro approached a two-month high against the yen on speculation European investors will bring home overseas earnings before the end of the first quarter. "We've seen some stabilisation so that has undermined the US dollar and allowed the euro to make some gains," said Daragh Maher, a currency strategist at the investment banking arm of Credit Agicole. The yen depreciated to 124.94 per euro in New York from 124.65 yesterday. The dollar weakened to USD 1.2707 per euro from USD 1.2611. The dollar declined to 98.33 yen from 98.84.

Crude oil traded little changed near USD 47 as Qatar said OPEC needs 100% compliance with existing quotas before discussing a fresh production cut. OPEC has lowered output three times since September to combat price declines and prevent a glut on world markets. Ministers meet in Vienna on 15 March. Crude oil for April delivery traded USD 47.22 earlier today in New York.

Gold fell for a second day in London as a gain in equities may reduce demand for gold as an alternative investment. "If risk perceptions ease, then of course you'll see the appetite for gold do the same," said Daniel Brebner, executive director of commodity research at UBS in London. Gold for immediate delivery dropped as much as USD 12.67 or 1.4% to USD 909.30 an ounce earlier. Prices fell 1.9% yesterday.

Spotlight on Asian Optimism

Asian markets stand at an interesting point after the ravages of 2008, with the much vaunted decoupling theory in tatters. Many commentators has suggested that the region had shed its long-term reliance on the US, driven by growth in China and India. But after a strong 2007, these markets were down significantly last year. Overall, Asia proved very liable to global shocks. Export-dependent countries, such as Singapore, are expected to go into recession this year, suffering from a much depleted US consumer.

Against this background, share prices have plunged almost as far as during the Asian financial crisis of a decade ago. Funds investing in the region have suffered a difficult time, with the average fund down around 30% over the 12 months to the start of February according to Morningstar figures.

Asia's performance is not substantially worse than other equity markets but such losses are significant for a region thought to be more insulated than in the past. Its banks are also generally more healthy than Western counterparts and have not needed such drastic government intervention. Commentators highlight this superior banking picture and a general lack of corporate and personal debt as key structural factors behind longer-term Asian strength.

Invesco Perpetual head of Asian equities Stuart Parks predicts growth of 7% and 5% for China and India respectively this year, which remains strong in a global context. He points out that Asian economies, with the exception of South Korea, are not leveraged and high savings levels should support domestic demand. The banking sector has limited exposure to toxic assets and is generally well capitalised, which should lead to robust lending rates and decent access to capital. Parks says, "The region's authorities have been proactive in attempts to ease the effects of the downturn through lower interest rates and fiscal stimulus packages. The most notable of these was the USD 580 billion spending programme announced by China, equivalent to 15% of GDP. It is worth remembering, that for the most part, Asia is structurally sound." Many managers feel that recent equity falls have also removed pockets of overvaluation in the region and left Asia at historically cheap levels.

HSBC economists Frederic Neumann and Robert Prior-Wandesforde also predict a return to positive growth in Asia as the year progresses. The pair believe the region has been hit by two recessions, domestic and external, rather than just collapsing exports. Overseas shipments did fall from October, providing a crippling hit to the region's vast export machine but they said domestic demand had already started to decline over the summer, with investment and consumption starting to slow rapidly. "Here, the inflation surge over the first half of 2008 and attendant monetary tightening are mostly to blame," they add.

Looking ahead, they believe domestic demand should begin to pick up as price pressures abate and interest rates come down. In tandem with powerful fiscal stimulus, the HSBC economists expect this will cause growth to turn positive as the year progresses. To put some numbers on this, they predict Asia excluding Japan, in weighted terms, will grow by 5.5% this year, down from 7% in 2008. Within this, Korea, Taiwan, Singapore, and Hong Kong, will see their economies contract on a full-year basis, with China and India more resilient given their vast internal markets and limited exposure to turbulence elsewhere.

Aberdeen Asia managing director Hugh Young is another high profile commentator who believes the recent demand shock will be short term. He says Asian economies must now focus on the next stage of their development, which will see domestic demand take over from external demand and the region's markets truly decouple from the West. He says, "What we are witnessing is a critical point at which economic dominance shifts rapidly from one global force to another. Asia's time has come. "With the region set to emerge from the credit crunch stronger than ever, now is without doubt one of the most attractive times to invest in Asian-Pacific equities I have witnessed in 25 years."

President-elect Barack Obama's economic stimulus package is to contain as much as USD 300 billion worth of tax cuts out of the total package of USD 775 billion, according to Democratic aides. Making such a high level of tax cuts within the package is likely to win approval from congressional Republicans. Senate Minority Leader Mitch McConnell said his party would support an immediate middle-class tax cut as part of any stimulus package. The plan would attempt to boost consumer demand by spending USD 140 billion on tax relief for individuals. By using the mechanism of tax relief rather than end of tax year rebates would get money to people immediately. Similar measures would be implemented for businesses. The remainder of the stimulus package would be used for spending on roads, bridges and other infrastructures to create or save 3 million jobs. Meanwhile the outgoing Bush administration has thrown a lifeline to the US's troubled car manufacturing industry, granting loans worth USD 13.4 billion to keep General Motors and Chrysler from bankruptcy for now.

Chinese economic growth, boosted by the government's 4 trillion yuan (USD 586 billion) stimulus package, will likely exceed 8% this year according to Citigroup's chief Asia Pacific economist, Huang Yiping. "Latest official statements confirm that 8% growth is now a political as well as economic policy priority." China needs growth of at least 8% to create enough jobs for the 20 million workers entering the urban workforce annually and ensure social stability. Strong growth in China compared with other economies worldwide will lead to gains in the yuan. The Chinese currency will appreciate more than 4% this year to 6.55 yuan per dollar, Huang said.

The Reserve Bank of India cut is benchmark overnight lending rate on 2 January to 5.5% from 6.5% and the government announced a second stimulus package to encourage economic growth and encourage overseas investors to boost holdings of local assets. The Indian finance ministry predicts the economy will expand as little as 7% in the year ending 31 March, the slowest pace since 2003.

The yen has fallen in the last three days against the euro on speculation that US fiscal stimulus and gains in global stocks will give investors confidence to buy higher yielding assets. The yen traded at 128.09 per euro in London earlier today down from 127.76 in New York late last Friday. It was at 92.00 versus the dollar from 92.42 on 2 January. The euro bought USD 1.3922 from USD 1.3921 and declined to 1.4969 Swiss francs from 1.5030. The pound fell to USD 1.4539 from USD 1.4548.

The dollar, yen and Swiss franc may weaken this year against 2008's biggest losers in the currency markets as the global economy starts to recover, the largest foreign-exchange strategists and investors say. The winners will be the Brazilian real, Indonesian rupiah and Polish zloty as investors return to higher-yielding assets, according to a Bloomberg news survey. The dollar may strengthen versus the euro and Japanese yen, while dropping against the pound. The Dollar Index that tracks the currency against six of the US's biggest trading partners fell 6% last month, the most since July 1985, after rising 18% from June to the end of November.

The steepest decline in crude prices on record may be setting up oil investors for a rally this year, if history is any guide. The so-called forward curve of futures contracts traded on the New York Mercantile Exchange suggests oil will rise 30% to USD 60.29 a barrel by December. The curve looks almost the same as 10 years ago, after Russia's default and the collapse of the Long-Term Capital Management LP hedge fund raised concerns that a global economic slowdown would reduce energy demand.

Fund managers have been making their predictions for 2009 with most in agreement that markets will rise during 2009. Predictions vary between fund managers but the most convincing fund managers are those who are realistic. Tim Steer, manager of New Star UK Alpha Fund, explains that some of the fall in share prices in 2008 was due to technical factors. "2008 was notable for a collapse in the link between company earnings and share price performance. Ordinarily, companies with good prospects that deliver solid earnings can expect their share price to rise. But in the latter half of 2008 many companies met or exceeded expectations but their share prices fell." He points out that de-leveraging has forced hedge fund managers, faced with redemptions, to sell their good stocks. "Normal investment analysis has therefore been thrown out of the window." But Steer believes the volatility will eventually end and "those investors who stick to their guns and continue to invest in companies with solid fundamentals will be proven right in the medium term, even if short-term de-leveraging creates erratic price movements."

Spotlight on Europe

Chancellor Angela Merkel's Social Democratic coalition partner has proposed a 40 billion euro (USD 56 billion) economic stimulus programme, as the ruling parties have narrowed their differences over steps to combat the recession. The SPD plans include infrastructure investment and tax relief for families, while rejecting calls by the Christian Social Union, Merkel's Bavarian allies, for direct income tax cuts.

Bank of England Governor Mervyn King may abandon his reticence to shore up the financial system as the UK economy moves further into recession. With the central bank set to cut the UK's key interest rate to the lowest in history this week, King may soon be forced to follow the US Federal Reserve and pursue other ways to inject money into the contracting UK economy. King's first course of action will probably be to expand the GBP 200 billion programme that allows banks to swap illiquid securities for government debt, economists say.

European investor confidence increased for the first time in seven months in January, rebounding from a record low on interest rate cuts and government measures to stimulate the economy. An index measuring euro-region sentiment rose to minus 34.4 from minus 42.3 in December, the steepest increase since August 2005, when the announcement of early German elections boosted morale, Germany-based Sentix research institute said today. "People realise that the measures put under way by ventral banks and governments will show some effect," Patrick Hussy, an economist at Sentix said. "The dynamic of the increase is promising and mustn't be underestimated. It came as a surprise but suggests the light at the end of the tunnel has appeared."

The pound may rebound from its worst year on record against the euro as investors start betting on a recovery in the UK economy. The UK currency will strengthen 14% against the euro in 2009, after depreciating 24% in 2008, based on a median forecast of 42 analysts and strategists surveyed by Bloomberg. "We will see some signs of life in the UK economy sooner than we do in the eurozone," said Henrik Gullberg, a strategist with Deutsche Bank in London. "Even though we might be far away from a rate hike in the UK, the focus for currency traders will shift to that sooner in the UK than in the eurozone." The pound ended last week at 96.10 pence per euro and USD 1.4580.

The Bank of England will have to follow the US Federal Reserve and Bank of Japan by cutting borrowing costs close to zero before the pound starts to recover, according to Neil Jones, head of European hedge fund sales at Mizuho Capital Markets in London. The yield on short sterling futures contracts expiring in March declined 65 basis points to 1.74% since the most recent interest rate cut by the Bank of England on 4 December indicating increased bets on further reductions. "The quicker the Bank of England bites the bullet and cuts to zero the quicker the pound can start to recover," Jones said. "They are just prolonging the inevitable." He further added that he thinks sterling may trade at parity with the euro in the coming weeks.

The spread of London interbank offered rates (Libor) for three-month dollar funds over anticipated policy rates fell to its lowest since the immediate post-Lehman period and three-month euro and sterling Libor rates were once again fixed lower, having fallen every session since early October. Analysts said the flood of central bank liquidity and myriad government banking guarantees throughout the fourth quarter have ensured there's sufficient cash available in the system to bring down lending rates, even though some banks are finding alternative methods of funding from traditional interbank markets, such as using the repo markets more efficiently.

Crude oil rose for a second day in New York following concerns that supplies of Middle Eastern oil may be disrupted and news that China intends to build its emergency stockpiles of oil while prices are low. Crude oil for February delivery rose as much as 5.6% to USD 39.82 a barrel on the New York Mercantile Exchange.

Instability in the Middle East has driven up demand for gold as a haven and hedge against inflation. Gold for immediate delivery increased to USD 882.44 an ounce in London. Gold may climb to USD 935 an ounce by the end of next week according to James Moore, an analyst at The BullionDesk.com in London.

Spotlight on Asia

Japan's stock market, down by more than half from 2007, is likely to experience a "dawn" in 2009 as the Japanese government supports small businesses and the US tackles the financial crisis, Credit Suisse Group wrote in a report. "We forecast 2009 will represent a dawn for the Tokyo market, a period before the return of the sunshine," Credit Suisse's Shinichi Ichikawa, chief Japan equity strategist in Tokyo, wrote in the brokerage's annual outlook report published last week. President-elect Barack Obama's "inauguration will have an immediate positive impact on Japanese stocks as he leads the US out of the financial crisis." The benchmark Topix index could rise as much as 42% to 1,200 by the end of the year, he said. The brokerage recommended staying "overweight" in defensive and domestic shares as the yen is likely to continue strengthening against the dollar and euro, depressing earnings for Japanese exporters.

Japan's Mitsui Sumitomo Insurance, Aioi Insurance and Nissay Dowa General Insurance are in talks to merge in a move that would create the country's largest non-life insurer. "Investors liked the merger news as it sparked hopes of greater profitability and less competition in the sector," said Yoshinori Nagano, a chief strategist at Daiwa Asset Management.

Singapore's expenditure on research and development grew by 26.5% in 2007 and equates to 2.61% of GDP. Private sector spending was USD 2.9 billion with the majority being accounted for by R&D connected to manufacturing. Yena Lim, managing director of A*STAR, said, "2007 has been exceptional...Singapore is fast building a strong base of R&D activities in the country. The Government's steadfast support of R&D activities has spurred the rapid development of this sector, and encouraged investors to make significant R&D investments here. Knowledge-based and innovation driven activities will allow our economy to be more resilient and create high value jobs for Singaporeans."

China has announced a pilot scheme to allow trades in the yuan. It is part of a package of measures designed to help exporters. Most of Chinese foreign trade is settled in US dollars or the euro, leaving exporters vulnerable to exchange rate fluctuations. The yuan is not yet a freely convertible currency but is already being used in some South East Asian countries, such as Vietnam. The scheme, when it is launched, will allow the yuan to settle trade between parts of eastern China and Hong Kong/Macau and between south-west China and the Asean group of countries.

Barack Obama has expanded the goals of his proposed economic stimulus, with a plan to create or save an additional 500,000 jobs. The president-elect raised his job's target over the next two years to 3 million, up from the 2.5 million goal set last month, as US unemployment reached its highest level for 15 years. Transition officials said Mr Obama had agreed the outlines of a USD 675 billion to USD 775 billion two-year recovery plan last week. But the cost is likely to rise above USD 800 billion as Congress makes its own demands during the legislative process.

The Irish government is to put 5.5 billion euro into Ireland's three largest banks, taking control of Anglo Irish Bank Corp. The government will inject 1.5 billion euro into Anglo Irish in return for preference shares with 75 percent of its voting rights. Ireland, which was the first country in Europe to guarantee all bank deposits, is being forced to use public money after initially urging the banks to seek private investors to assist in the country's bank bailout.

The pound weakened against the euro, moving closer to parity for the first time, as traders increased bets the Bank of England will lower interest rates to stimulate the UK economy. It depreciated to 94.71 pence per euro in London and also dropped against the dollar to USD 1.4870, from USD 1.4920. The yen has weakened against the dollar and euro as Japanese exports have decreased and the US government aid to General Motors and Chrysler reduced demand for the currency as a haven. The yen dropped to 126.30 per euro in London and to 89.76 against the dollar.

Crude oil traded above USD 42 a barrel after OPEC restated its commitment to enact production cuts announced last week. OPEC is "determined" to stabilise oil markets, the Saudi Oil Minister said yesterday. Oil is poised for the first annual decline in seven years, falling 55% in New York so far in 2008. Crude oil for February delivery traded at USD 42.44 in electronic trading on the New York Exchange earlier today.

Most analysts think it's unlikely that European stock markets will rally before the second half of 2009. However, they think there may be some good values even in cyclical businesses such as manufacturing. Bleak earnings outlooks have already been factored into many share prices. And, says Philip Isherwood, chief European equities strategist for investment bank Dresdner Kleinwort in London, managers at some companies "are becoming more realistic," trimming their forecasts and moving aggressively to reduce costs.

He adds that such companies are likely to outperform rivals even in a poor economy, and they'll be well-positioned for the next upturn. Isherwood gives one example: steelmaker Arcelor-Mittal, which faces a collapse in demand from carmakers and other big customers. It has announced tough cost-saving measures, including a plan to save USD 1 billion by cutting some 9,000 jobs. With its price-to-earnings ratio of just 2 based on 2009 predictions, its now being viewed as a "buy" by analysts.

Companies that dominate their sectors also can make good bets, as they emerge from the downturn with a tighter grip on their markets. "In tough times, the people who are stronger and able to invest are better off than weaker competitors," says Nokia CEO Olli-Pekka Kallasvuo. Nokia, which holds 38% of the global cell phone market, has twice revised its 2008 sales forecast downward, but it has a healthy balance sheet and generated more than USD 1.6 billion in cash flow during the third quarter. With its shares off by two-thirds in this year's market turmoil, it looks like a good buy, say analysts.

Currency movements could produce some winners too. Shares of luxury-goods giant LVMH Moet Hennessy Louis Vuitton have fallen some 30% since September as demand has weakened in key markets. Although LVMH's sales growth in 2009 will be only 3%, HSBC predicts earnings will jump 6% because LVMH books about half its sales in dollars and yen, which have risen sharply against the euro.

Spotlight on Latin America

Wal-Mart Stores Inc's planned purchase of Chile's Distribucion y Servicio D&S SA will be the discount retailer's biggest acquisition in Latin America. Wal-Mart's tender offer values Chile's largest grocer at about USD 2.66 billion. The purchase signals Wal-Mart's relative health at a time when other US retailers are struggling.

Brazil's benchmark rate, Selic, will end 2009 at 12.25% according to a central bank survey of about 100 economists. Inflation is forecast at 5.02% next year by the same survey. The central bank targets inflation of 4.5%, plus or minus 2 percentage points.

Mexican inflation may have stayed near a seven-year high in the first half of December, helping to delay any move by central bank policy makers to cut interest rates. Consumer prices in Latin America's second-largest economy rose 0.27% in the first 15 days of December, according to the median estimate of 12 economists by Bloomberg. Mexico's inflation rate will probably end the year above the central bank's forecast of 6%.

Peru is advancing with plans to sell its first foreign bonds in almost two years to demonstrate its economy's strength after receiving investment-grade ratings. Peru will follow Mexico, which yesterday became the first developing nation to tap international debt markets since September. The Peruvian government states it has no pressing need for the cash and doesn't need funds to help finance a USD 3 billion economic stimulus plan announced last week.

The yen has risen against the euro as European stocks and US index futures have fallen, lifting the yen's appeal as a haven. The yen appreciated to 118.87 per euro in London. Against the dollar, the yen strengthened to 92.46 from 92.82. The Japanese currency may trade at 94 against the dollar in three months' time, Bank of New York Mellon Group commented. The euro slid to USD 1.2858 from USD1.2963.

The price of crude oil is little changed on the New York Exchange with demand falling from all the major oil importers. Crude oil for January delivery is USD 43.66 a barrel. OPEC meets next week and is expected to decide to make significant cuts in production. However, not all OPEC members are complying with quotas. Saudi Arabia, the world's largest crude exporter, is currently producing 107% of its OPEC quota but it is expected to trim its exports soon.

Gold fell in London as the dollar gained and oil declined, reducing the metal's appeal as an alternative investment and hedge against inflation. Gold for immediate delivery lost USD 3.70, or 0.5%, to USD 769 an ounce in London. February futures were little changed at USD 769.10 on the New York Exchange.

The Bank of Canada has lowered its benchmark interest rate by more than anticipated to a half-century low. Its rate setting panel reduced the rate from 2.25% to 1.5%. Canada's central bank commented in a statement, "The Bank will continue to monitor carefully economic and financial developments in judging to what extent further monetary stimulus will be required." Canada's decision comes a week before the US Federal Reserve's next meeting, followed by the Bank of Japan two days later.

Standard & Poor's has downgraded their credit rating for Russia, the world's largest energy producer. The agency cited the rapid depletion of foreign currency reserves as capital continues to flee the country. Its chief economist Roger Bootle says, "Russia will be hit hard by the collapse in oil prices. Both the fiscal and current accounts balance at around USD 65 a barrel." However, leading fund managers, such as Neptune's Robin Geffen, manager of the Neptune Russia & Greater Russia fund, have quite a different view from the economists. Geffen states, "This is definitely a buying opportunity. When one reads the State of the Nation delivered by Putin last week it becomes clear this is a centralised economy where the decision making is working. It is a system where individuals and companies are not leveraged." Geffen equates Standard & Poor's decision to lower Russia's credit rating with its failures to spot risks inherent in vehicles hit by the credit crunch. He also waves off fears over the depleting foreign exchange reserves saying, "Look at the big number. It is still well in excess of the external debt, people have become obsessed with the oil price unfairly."

Spotlight on Europe

One European country has bucked the trend of writedowns and government bailouts. It's Italy, whose banks have outperformed larger continental rivals over the last 18 months. Italian banks such as Intesa Sanpaolo and Unicredito Italiano have outpaced European heavy weight rivals such as Barclays and BNP Paribas primarily due to their extremely conservative business models. The Italian banks have stayed clear of securitised assets and subprime loans, forgoing profits that boosted rivals' balance sheets in the past, but also avoiding the huge losses that ensued later. Instead, they have remained focused on traditional retail operations and corporate lending, relying on customer deposits to fund day-to-day operations. While this conservatism and lack of global ambition were previously seen as major weaknesses, analysts now applaud Italian banks on their focus on traditional ways. Indeed, banks around the world are following suit and going back to basics.

German investor confidence unexpectedly rose in December even after its economy entered recession. The ZEW Centre for European Economic Research said its index of investor and analyst expectations increased to minus 45.2 from minus 53.5 in November. "We're probably already past the worst in investor sentiment even if that doesn't necessarily apply to the economy," said Rainer Guntermann, an economist at Dresdner Kleinwort.

Beneteau, the world's biggest sailboat maker, predicts a pause in profit growth this year as a result of economic uncertainty and sees signs of recovery in demand. "People were anxious about their bank accounts and about whether their bank would go bankrupt," said Chief Executive Officer Bruno Cathelinais. "Now, that period is over. Clients are once again signing up for boats. Demand is sustained."

Global financial stocks are likely to outperform industrials during 2009, Fidelity asset-allocator Trevor Greetham has predicted, but investors will face hard choices. Greetham, manager of Fidelity Multi-Asset Strategic fund, said that investors will have to contend with a "tug of war" between falling earnings and attractive valuations. He added that investors hoping for flat markets and the predictability of a downturn after the historical volatility of 2008 are likely to be disappointed, however. "Markets are likely to remain extremely volatile as investors weigh up bad news on the economy against an unprecedented array of central bank and government stimulus packages," said Greetham. He added, "Rather than trying to time moves into and out of stocks, investors looking for a lower risk profile would do best to diversify their exposure across a range of asset classes or invest in a balanced fund. Interest rate-sensitive sectors such as consumer cyclicals and defensive areas such as staples and healthcare will be the most attractive areas for equity investors. Financials are likely to outperform industrials."

The Swiss National Bank is becoming the first central bank in Europe to learn what it's like to live in a zero interest-rate world leaving it with little room for further cuts. On 20 November the bank reduced the short-term rate it uses to steer borrowing costs to 0.1%. SNB President Jean-Pierre Roth may instead have to find new tools, such as "quantitative easing", to restore the flow of credit through the economy and head off the risk of deflation. The unorthodox tool was last deployed by the Bank of Japan a number of years ago when policy makers kept their key rate at zero and flooded the banking system with cash to encourage lending.

The SNB's challenge may soon be shared by other central banks. The Bank of England's Governor openly discussed the possibility of zero interest rates for the first time on 25 November. The European Central Bank will cut is benchmark rate to 1.5% next year, according to a Bloomberg News survey, with Citigroup saying a move to zero is possible. The US government is already starting to use unorthodox methods. The US central bank on 25 November said it will purchase as much as USD 600 billion in debt issued or backed by government-chartered housing finance companies.

Thirty-year US Treasury bonds are returning the most since 1995 as investors bet the Federal Reserve will buy the securities to help bring down long-term borrowing costs. The so called long bond has returned 27.8% this year, including a 15.6% gain in November, Merril Lynch & Co index data show. Market commentators wonder how long the "bubble" will last as, despite the expense, investors are enticed to buy the debt for fear of missing out on even more gains.

Crude oil has fallen to its lowest level in more than three years as demand in the US has weakened more than expected. Oil for January delivery is down to USD 47.36 In New York, 68% down from its height last July. OPEC will reduce crude production when it meets in Algeria this month and they expect oil demand to drop further next year.

Spotlight on Latin America

Brazil may access USD 6.35 billion of its yet to be approved sovereign wealth fund to enable the state development bank (BNDES) to boost lending to local companies as external credit has become increasingly scarce. Brazil's government wishes to secure economic growth of 4% next year. President da Silva asked Congress in July to establish a wealth fund that would hold the equivalent of 0.5% of the gross domestic product in 2008. However, the bill, approved by Congress on 4 November still needs Senate approval.

Peru's economy grew 9.5% in the third quarter, the fastest pace in Latin America. Peru's National Statistics Institute says growth slowed only slightly after expanding by 9.9% in the first two quarters compared to the same period in 2007. The Institute said Peru's construction, mining and fishing industries largely withstood the downturn being experienced elsewhere. Peru's government expects growth to slow to 6% next year as deflated prices affect its mineral exports.

A report by Mexico's central bank shows that its economy will expand 0.38% in 2009. Economists raised their forecast inflation this year to 6.27% from 5.84% earlier. Speculators increased bets last week that the peso will decline against the US dollar as figures from the Commodity Futures Trading Commission show. The peso's slump over the past three months has encouraged Mexican workers abroad to send more money home in October, the dollar inflow rising 13% over October 2007.

Meanwhile, the UK's second largest bank, Barclays Plc, has won shareholder support to raise USD 10.5 billion without surrendering control of its dividends or lending. The company has agreed to sell stock to funds from Qatar and Abu Dhabi, bypassing ordinary shareholders and the UK's bailout pool. Barclays made the "extremely difficult" decision to reject government money because it needed to act quickly to ensure certainty, said commentators.

Russia's central bank relaxed its defence of the rouble, allowing it to depreciate after having used up nearly a quarter of the nation's foreign reserves in less than four months in an attempt to stem the currency's decline. Russia's international reserves, the third biggest after China's and Japan's, have dropped by USD 144.6 billion as the central bank struggles to contain the country's financial troubles. The rouble has decreased 15% against the US dollar since 1 August brought mainly by declining oil revenues.

Three month Libor rates have dropped below 4% and are now only 98 basis points from the UK base rate of 3% at 3.98%. Mortgage lenders have defended their position of not passing on the recent base rate reduction to mortgage holders as Libor spreads have remained high. Now, as the Libor edges closer to base rate, lenders will be under increasing pressure to lower mortgage rates.

Fuel demand in the US fell 5.2% in the first 10 months of this year, the largest fall since 1981. Crude oil for January delivery is USD 52.23 on the New York Exchange. OPEC are scheduled to meet on 29 November. Slowing global demand has left a 1 million barrel a day over supply that needs to be removed by year end, Venezuela's oil minister said.

Gold has increased to a five-week high in London as German business confidence and dollar weaken, increasing the metal's appeal as a haven. Gold for immediate delivery rose to USD 819.54 an ounce in London. Gold has slipped 21% in London since reaching a record USD 1,032.70 an ounce in March as investors liquidated commodity holdings to raise cash as the credit crisis has deepened. ING Groep NV has cut its 2009 gold forecast by 19% to USD 750 an ounce. Platinum, silver and palladium estimates also lowered.

The yen rose against the US dollar as Citigroup received US government assistance, reducing appetite for higher yielding assets funded by loans from Japan. The yen rose to 95.33 against the dollar in New York and analysts believe it may strengthen further to 90 by year end. The yen also gained against the Australian and New Zealand dollars on speculation investors will reverse so called carry trades as profits for financial companies are reduced. The yen is popular in carry trades, where purchases of higher-yielding assets are funded in nations with lower interest rates. Japan's 0.3% compares to 5.25% and 6.5% in Australia and New Zealand respectively.

Spotlight on the United Kingdom

UK Chancellor, Alistair Darling, has announced a fiscal stimulus package in his 2008 Pre-Budget Report in the order of GBP 20 billion or 1% of the UK's GDP. He has predicted growth in GDP will be 0.75% for 2008 but it will fall by between 0.75% and 1.25% in 2009 with growth expected of between 1.5% and 2.0 % in 2010.

Key points of the package are:

• GBP 3 billion of capital spending on infrastructure to be brought forward from 2010/11.
• VAT will be reduced from 17.5% to 15% from next Monday for 13 months.

However, not all was good news:

• A new 45% higher income tax rate is proposed for earnings above GBP 150,000 from April 2011.
• National Insurance contributions will rise by 0.5% fro April 2011.
• The dividend rate for discretionary trusts will rise from 32.5% to 37.5% and the rate of income tax will increase from 40% to 45% on other income. The new rates will be brought in from 2011/12
• Air passenger duty will be increased for those travelling further.

The overall effect of the package means that UK government borrowing will reach GBP 78 billion in 2008 and GBP 118 billion in 2009 (or 8% of GDP). He predicts falls in subsequent years reaching GBP 54 billion by 2016.