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Investment analysis

In spite of the optimistic forecasts of most investors at the start of the

year, 2002 turned out to be an annus horribilis for equities, with most of

the world&#39s major stockmarkets suffering their third consecutive year on

year decline while at the same time turning in their worst performance

since 1974.

In the UK, the FTSE 100 index fell from 5217.4 at the start of the year to

3940.4, a fall of 22.2 per cent, with the market hampered by a

deteriorating corporate profits outlook, the further threat of terrorist

attacks and the ever-increasing threat of a War with Iraq. In addition,

insurance companies were again massive sellers of equities, thereby

quashing any attempts of a market rally.

There were also some high-profile casualties at the individual stock level,

with Marconi and Cable & Wireless losing 96 per cent and 86 per cent of

their value respectively while shares in news information group Reuters

ended the year nursing a loss of 74 per cent.

Further down the capitalistion scale, mid-cap stocks performed relatively

well compared with their larger counterparts earlier in the year, only to

fall away in the second half, with the FTSE 250 index ending the year 25

per cent lower. Meanwhile, small caps faired little better, with the Hoare

Govett Smaller Companies index falling by 24.3 per cent.

In the US, equities had an equally tough time with the collapse of Enron

and then WorldCom casting a shadow over the corporate sector while

investors also remained concerned over relatively high valuations on Wall

Street and the threat that the world&#39s largest economy may fall back into

recession.

For the third year in a row, technology shares suffered the steepest

losses, with the Nasdaq falling by 31.5 per cent. It was also a disastrous

year for the broader market, with the S&P 500 falling 29.8 per cent

although the Dow Jones Industrials index faired somewhat better, ending the

year 15.3 per cent lower.

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