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Investment analysis

With the first quarter of this year over, world stockmarkets have focused on heightened geopolitical tensions in the Middle East and in the Korean peninsula while weak economic and corporate data also weighed on investor confidence during what was a volatile first quarter.

Military action in Iraq saw markets rally strongly, But the euphoria gave way to pessimism and the bulk of the relief rally gains were given back. The quarter saw the benchmark FTSE World index fall by 3.4 per cent.

In the US, equities rallied strongly at the start of the quarter after the $670m

tax stimulus package, which included a proposal for the elimination of dividend taxes, fuelled a surge of investment into the higher-yielding sectors, particularly financials, utilities and telecoms. However, these early gains were given up after Microsoft, IBM, Intel and GE sent out weak signals for the year ahead.

European economic news was mixed. The eurozone purchasing managers&#39 index climbed above 50 in February and fourth quarter GDP grew by 0.2 per cent quarter on quarter but the region&#39s unemployment rate rose to 8.6 per cent and German and French March business sentiment indicators fell. It was these two country&#39s markets, which were hit the hardest. The Dax fell by 11.2 per cent and the CAC 40 lost 9.5 per cent while the FTSE Eurotop 300 fell by 7.7 per cent.

UK markets were tested severely at the start of the quarter. The FTSE 100 registered 11 consecutive days of declines in January, its longest sequence of losses since it was formed in 1984. The FTSE 100 fell by 7 per cent during the quarter.

In Japan, the Nikkei 225 lost 5.3 per cent. The exporters lost ground early on concern about the fragility of US domestic demand. Unemployment in the region peaked at 5.5 per cent, a post-war high before settling back at 5.2 per cent by the end of the quarter. The region&#39s deflationary woes were highlighted with the core consumer price index falling by 0.8 per cent year on year.

In South-east Asia, geopolitical issues and Sars weighed heavy on the market The benchmark FTSE World Pacific exc Japan index ended down by 2.6 per cent.

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