THE year just ended was one of surprises in the financial markets, which is perhaps in the normal way of things. That being so, it's worth speculating what we could expect to see in 2003, including the wild cards.

First, a recap on the quite extraordinary events of the last year. It was, in brief, a year of continuing carnage in the markets, of corporate skullduggery on a grand scale, a frustrating year for economic policymakers against a backdrop of high political tension. Last year, the Dow Jones industrial index notched up its first three-year losing streak since 1941, posting a 17 per cent loss. The technology-heavy Nasdaq did even worse, shedding more than 30 per cent, as the excesses of the tech bubble of the late 1990s continued to weigh heavy. Fortune 500 companies such as Enron, Arthur Andersen and Worldcom went bust after a wave of accounting scandals. Dozens of others had a close shave.

Across the Atlantic, European markets didn't fare much better, also racking up double-digit losses. Asia's main markets - Tokyo, Hong Kong and Singapore - too were all down by close to 20 per cent. The only markets that yielded decent returns were ones few would have bet on: Pakistan, which jumped 118 per cent in US dollar terms, Indonesia, which rose 26 per cent and Thailand, up 20 per cent.

In general, stock and technology funds had a miserable year, but highly-rated corporate bonds and treasuries did well, as did many hedge funds and some commodity-based funds, especially those with big holdings of gold and oil-price sensitive assets.

This was not how it was expected to pan out at the start of the year, when analysts bet that major stock markets would recover, that bonds had topped out, and commodities looked unexciting; hardly anybody bet that oil prices would end the year at more than US$30 a barrel.

Looking ahead, what can we anticipate? It does not seem unreasonable to expect that oil prices at least will come down, once Iraq-war fears abate (although until this happens, the risks are high), calm returns to oil-rich Venezuela, and the Northern Hemisphere winter tapers off.

In the bellwether equity markets of Wall Street, it would be surprising indeed if the Dow and the Nasdaq were to tank for a fourth straight year; with the US economy likely to avoid recession and with corporate earnings coming off their low base in 2002, the odds-on scenario has to be a market recovery - especially once the threat of war lifts and oil prices moderate. A wild card, however, could be interest rate hikes (after 12 consecutive cuts) by the US Federal Reserve during the second half of the year, once the US economy starts to show signs of strength. That, in turn, could - together with rising US budget deficits - make it a tough year for bonds.

Japan surprise

Major Asian markets should benefit in the wake of a Wall Street recovery. An additional, tantalising, possibility is a rise in the Japanese market, which spent much of 2002 bumping along levels close to its 19-year low. While continuing economic weakness and a hobbled banking system is the baseline scenario for Japan, there is a chance the coming new leadership at the Bank of Japan could wage war on deflation in a way never done before. If this happens, expect Japan's market and economy to start recovering, though this could be accompanied by a weakening of the yen - another possible wild card this year, which implies a strengthening of the US dollar, rather than the widely-expected weakening.

Finally, at home, while the current picture is so-so at best, with low growth, high unemployment and an anaemic stock market, much could change in 2003 as the US economy and markets recover, the electronics cycle picks up, and oil prices trend down. Chances are that both the Singapore economy and stock markets will fare better this year than last.

But for Singapore, it will also be a big year for structural change; the final verdict of the Economic Review Committee will be in early in the year. Some of the changes - such as those relating to taxes, CPF and wage structures - are already known. But reshaping Singapore - by sharpening competitiveness, unleashing entrepreneurship, and setting the stage for a more vibrant, creative society - could involve several additional surprises, so stay tuned. And more generally, as is true just about every year, don't expect this year to be like the last.

January 2, 2003

Shipping News

(CARACAS) Venezuela said it will investigate the grounding of a freighter that got stuck near the Maracaibo shipping channel, normally the conduit for half of the country's oil exports.

The Irene E M, carrying 25 tons of coal, has been grounded in the channel since Monday afternoon, Maracaibo Port Captain Jose Fernandez said. Efforts to refloat the ship are continuing. 'We're conducting an investigation to find out what happened,' he said. The ship ran aground because its pilot - one of the few who has not joined a month-long national strike - was tired, reported El Nacional, citing striking tanker pilot Cesar Vicente.

Before a strike began Dec 2, as many as 1.4 million barrels of oil passed through the channel daily. Oil output has shrunk by about 90 per cent since then.

The risk of accidents earlier prompted the International Association of Independent Tanker Owners to issue a warning to its 240 members. The association accounts for 75 per cent of all independently owned tankers with deadweight above 10,000 tons.

Ships regularly run ashore in the channel, which has a chronic problem with sediment. - Bloomberg

Wednesday, January 01, 2003

CARACAS, Venezuela — The embattled Venezuelan president — his rule under threat from turmoil in the strikebound oil-producing nation — left the country Wednesday to attend the inauguration of the new Brazilian president.

In what could be a daring move given the upheaval shaking Venezuela, President Hugo Chavez arrived in the Brasilia for the ceremony installing President Luiz Inacio "Lula" da Silva, whom he considers a friend and ally.

As Chavez arrived at his Brasilia hotel, he told reporters the strike will fail and he wasn't worried about being toppled from power while out of the country.

"It's not a strike, it is a conspiracy," he said. "Venezuelan workers are on the side of the government. ... The country hasn't stopped."

As the old year turned to new Wednesday, thousands of protesters filled a downtown highway in Caracas to celebrate and demand that Chavez hold a referendum on his embattled presidency.

The demonstrators waved flags, shot off firecrackers and chanted, "Not one step back," in a call to continue a month-long general strike aimed at ousting Chavez from power.

A few miles away, about 1,000 Chavez supporters held their own rally with a loud celebration party outside one of Venezuela's state-run oil company buildings.

The capital awoke to silence Wednesday morning and streets littered with exploded fire crackers and broken beer glass. People stayed home and shops were closed — either for the strike or for the holiday.

The dueling celebrations highlighted the divisions in this South American country, where even family holidays have turned political. New Year's is traditionally a family celebration in Venezuela, the world's fifth-largest oil exporter.

The oil industry, which produces one-third of the gross domestic product and 70 percent of export revenue, has been paralyzed by the strike, which began Dec. 2.

Chavez responded by firing dozens of strikers at Petroleos de Venezuela S.A. and importing gasoline and food to counteract shortages.

At the opposition rally, the rhetoric toward Chavez was bitter.

"He is a bandit, an illiterate. He doesn't know how to speak well; he's primitive," said Carmen Carrillo, 63, as she watched what the opposition called a Party for Peace.

Strike leaders said Tuesday that if Chavez does not bow to demands for a Feb. 2 referendum on his presidency, they will lead another march on the heavily defended presidential palace.

"I say let's go," said Carlos Ortega, head of Venezuela's largest labor confederation. "And if they are going to kill us, let them kill us once and for all."

Nineteen people were killed in the opposition's last march on the palace, which prompted a failed two-day coup last April.

Already, protests have erupted at empty service stations. Many Venezuelans predict full-scale riots if Chavez cannot begin delivering gasoline.

Many citizens also are embarrassed that a nation with the largest oil reserves outside the Middle East has been forced to import gasoline from other countries.

At the pro-Chavez rally, the president's supporters listened closely to Chavez' year-end message. The speech, broadcast nationally and presented on a giant screen at the rally, offered little hope for a quick end to the crisis. The president instead braced his country for a tough year to come.

"We must prepare to face difficulties in the first quarter of the year: economic difficulties and difficulties in continuing all the government's plans," he said.

"Let's prepare ourselves for the battle, but prepare ourselves with the conviction that 2003 will be a good year. A year of bounty, progress, prosperity, and the consolidation of peace, to leave behind the winds of war that still blow."

The Chavistas, as the president's supporters are called, danced under Christmas lights as a 13-piece band played "gaitas," traditional holiday music, while fireworks lit the sky.

"Chavez is the president of the poor and we trust he'll make our lives better. That's why we're going to continue by his side in 2003," said 69-year-old Lourdes Cardenas. "United, we'll overcome adversity."

— NEW YORK (Reuters) - Tight security prevented incidents at major New Year's events, but the world marked the first day of 2003 under a cloud of terror fears, political uncertainty and looming war.

A grenade attack had killed nine people in an active Muslim rebel area of the Philippines shortly before midnight and a fireworks explosion in Mexico killed at least 37.

A total of at least 10 were killed as the Philippines rang in the New Year, in the grenade attack and celebratory gunfire. Over 400 were injured in separate incidents involving fireworks but officials said the figure was lower than previous years.

In the south of the mainly Roman Catholic country, where Muslim rebels are known to be active, an unidentified man threw a grenade into a street full of firecracker vendors, killing at least nine and wounding more than 30.

In Veracruz, Mexico, an explosion and fire in a street market packed with fireworks stalls killed 28 people and injured more than 50 in the port city of Veracruz.

In New York, up to 1 million people, screened for alcohol, drugs and weapons by police metal detectors, screamed and sang as the traditional crystal ball dropped at One Times Square.

But thousands of extra police were on duty; mailboxes and trash cans were removed and manhole covers were welded shut. The Coast Guard closed New York harbor to private pleasure boats, and police increased harbor patrols in response to what was called an "uncorroborated" threat of an attack.

PROSPECT OF WAR

At Camp Doha in the Kuwaiti desert, U.S. soldiers facing the prospect of war in neighboring Iraq welcomed 2003 in the conservative Islamic country with alcohol-free beer.

In Vatican City, Pope John Paul appealed for peace in his first message of 2003.

"In the face of today's conflicts and the menacing tensions of the moment, yet again I invited prayer to pursue pacific means for settlement," he said during his homily to celebrate the Roman Catholic Church's World Day of Peace.

In Iraq, U.N. weapons inspectors visited four suspect sites on Wednesday, taking no break for the new year, a public holiday in Iraq. A unanimous U.N. Security Council resolution in November gave Baghdad a final chance to reveal all details of its weapons programs or face "serious consequences."

North Korea issues a new year's message calling on its people to build "a powerful nation" under its "army-based policy." Pyongyang, accused by Washington of secretly developing nuclear arms, has started reactivating a complex capable of producing weapons-grade plutonium and has expelled U.N. inspectors monitoring it.

As Americans celebrated, the FBI hunted five men believed to have entered the United States illegally and wanted for questioning as part of the U.S.-declared war on terror after the Sept. 11, 2001, attacks.

U.S. air authorities marked the new year by starting to screen all checked luggage for explosives, compared with only 5 percent before the 2001 hijacked plane attacks.

But bad weather, not terror fear, delayed Philadelphia's annual "Mummers Parade" until Saturday. Forecasters anticipated rain and wind that would damage the Mummers' famed fancy costumes and fanciful displays.

POLITICAL CHANGE

Throngs of Brazilians celebrated the start of a new era as former metalworker Luiz Inacio Lula da Silva was sworn in as the first working-class and first leftist president of Latin America's largest country on Wednesday.

In Venezuela, a 31-day general strike that has choked the country's lifeblood oil business dragged on with a massive New Year's street party that organizers said was a show of determination to oust populist President Hugo Chavez.

In London and Paris, tens of thousands celebrated and extra police patrolled after recent arrests of suspects on terror charges. Cars were banned around Paris' famed Champs Elysees.

Remembering two bombs that killed more than 180 in Bali in October, two-thirds of Indonesia's police were deployed across the world's biggest Muslim nation.

Balinese put on a brave face at festivities on the famous Kuta Beach, blocks away from where bombs tore up nightclubs.

In Sydney, Lord Mayor Frank Sartor praised the 700,000 who showed up to celebrate. "They didn't listen to the doomsayers; we didn't listen to the malcontents; we went on and celebrated and had a great party," he said.

Fireworks over the harbor ended a year of drought, brush fires and the Bali bombings that killed up to 90 Australians.

In Russia, 250,000 police patrolled as tens of thousands of people ventured out despite extreme cold. Moscow's City Hall banned alcohol sales in the town center to prevent drink-fueled violence, such as marred World Cup crowds in the summer.

A candlelight vigil in Seoul, South Korea, which organizers had predicted would attract 1 million brought only 12,000 to protest against the U.S. military for the deaths of two girls killed in an accident by an American army vehicle.

The West African country of Ivory Coast relaxed a curfew for the first time since a failed coup on Sept. 19 sparked a civil war. It pushed back a strict 7 p.m. deadline in the maincity Abidjan to midnight to allow New Year celebrations.

BRASILIA (Brazil) Jan 1 - Luiz Inacio Lula da Silva, who dropped out of school as a boy to shine shoes and went on to become the leader of Brazil's leftist Workers Party, was to be inaugurated Wednesday as the 36th president of Latin America's biggest nation.

Silva, 57, takes over from Fernando Henrique Cardoso in Brazil's first transition between two democratically elected presidents in over 40 years.

Silva, a one-time radical union leader who used to espouse socialism, has promised to end hunger and economic misery in a country where an estimated 50 million of the 175 million citizens live in poverty.

But he faces huge challenges: inflation that has crept into the double digits for the first time in years, and a regional economic crisis that has plunged Brazil's neighbors into financial chaos.

Brazil's currency, the real, lost 35 percent of its value against the dollar last year, in part because of investor concerns over whether Silva will keep his pledge of financing the country's large foreign debt burden or Brazil will default, as Argentina did a year ago.

People showing up to watch the ceremony said Silva is up to the job but will have a tough time keeping his campaign promises.

``I hope he's going to change things, but it's a huge challenge for him,'' said Fabiane Cristina, a 20-year-old baby sitter who lives in Brasilia.

Leaders and representatives of 119 countries - including at least seven Latin American nations - planned to attend the ceremony.

Venezuelan President Hugo Chavez arrived Wednesday morning in Brasilia, leaving Venezuela despite a crippling strike in his country that has virtually paralyzed oil production for the world's fifth largest exporter.

But the most prominent guest was Cuban President Fidel Castro, who arrived in Brasilia on Tuesday night. Castro looked healthy and in good spirits after recovering from a serious leg infection that kept him out of sight in Cuba for two weeks last month.

As he entered a Brasilia hotel, Castro waved to photographers and said that he was happy Cuba no longer holds the ``monopoly of Jan. 1,'' the day that Cubans celebrate the revolution that brought Castro to power. Silva, who is popularly known as Lula, counts Castro and Chavez among his friends

Other leaders began arriving Tuesday and Wednesday morning as tens of thousands of Brazilians swarmed to Brasilia to take part in a huge inauguration party at a vast park within view of Brazil's Congress, where Silva was to be sworn in. The United States sent U.S. Trade Representative Robert Zoellick.

By Wednesday morning, thousands of Brazilians were staking out spots to watch Silva motor to Congress in an antique Rolls-Royce down the wide Esplanada dos Minsterios, a boulevard lined with government buildings designed by a renowned Brazilian architect.

In a break with tradition, organisers set up huge TV screens in the park and a stage where Brazilian pop groups were to play after the inauguration. Hundreds of outdoor stalls sold everything from grilled pork to T-shirts and beer.

After spending 14 hours on a bus from the financial capital, Sao Paulo, musician Joao Carlos Souza stretched his legs and changed into a bright red T-shirt saying ``100 percent Lula.''

He'd never been to a Brazilian inauguration before, saying the previous events ``were for people in suits drinking champagne.''

``This time it's going to be fun to participate in history,'' Souza said. - AP