www.alertnet.org 24 Feb 2003 20:51

(Adds background in paragraphs 9-10)

CARACAS, Venezuela, Feb 24 (Reuters) - Venezuela has lifted a force majeure for exports of some lighter grades of its crude as the government struggles to restore oil operations in the strike-hit country, energy minister Rafael Ramirez told Reuters on Monday.

"Some force majeures with some specific crudes have been lifted," Ramirez said.

Venezuela, normally the world's No. 5 crude exporter, declared force majeure on oil and product exports during the first week of a strike by foes of President Hugo Chavez. The strike started on Dec. 2.

Force majeure is invoked when a company cannot meet its contractual obligations.

The minister did not specify what type of crude oils were no longer under a force majeure, but a source with state oil firm Petroleos de Venezuela (PDVSA) said the lifting of the declaration was for light crudes from the nation's eastern region.

"Its production from the eastern side, crudes like Mesa and Santa Barbara," the PDVSA source told Reuters.

Crude production from the east has been restored to close to prestrike levels, while older oil fields from the west take longer to return.

The OPEC nation, which normally supplies more than 13 percent of U.S. crude imports, had been shipping nearly 2.7 million bpd of oil and products before the stoppage disrupted oil operations. Oil exports provide half of government revenues.

PDVSA has fired more than 12,000 oil employees that joined the strike, and is using replacement workers and the military to help restart the industry. PDVSA President Ali Rodriguez said on Sunday that oil production had been restored to just more than 2 million bpd, and that nearly 500,000 bpd more were to be brought back on this week.

Dissident PDVSA employees have said output has reached just 1.5 million bpd, compared with more than 3.1 million bpd before the strike.

reuters.com Mon February 24, 2003 12:31 PM ET (Clint Willis is a freelance writer who covers mutual funds for Reuters. Any opinions in the column are solely those of Mr. Willis.) By Clint Willis

BOSTON, Feb 24 (Reuters) - Mutual funds are not as well-liked as they were during the bull market, and some funds are downright detested. But the latter may offer the best opportunities for gains in the years ahead.

Chicago fund research company Morningstar, Inc. recently published results of its annual look at the market's most popular and unpopular fund groups. Over the years, the study has shown that investors who buy the least popular fund sectors often end up with market-beating returns.

Here's how the study works: Each January, Morningstar identifies the stock-fund categories that have attracted the largest cash inflows as well as the categories that have experienced the largest outflows during the previous calendar year. That done, they track the performance of both categories over the following three years. Then they compare results of the least- and most-popular categories.

Wouldn't you know it? Since 1987, the most hated fund groups have outperformed the most loved groups 90 percent of the time. Better yet, the unloved funds have outpaced the average equity fund 75 percent of the time.

For example, Morningstar analyst Josie Raney notes that 1999's least-popular funds came in these three groups: precious metals, Latin American stock, and convertibles. Investors abandoned those funds to buy red-hot technology funds. What happened? The unloved funds from that year have gained 0.54 percent annually on average in the last three years. That compares to an average annual loss of 26 percent on average for 1999's three most popular fund groups: technology, Pacific Asia ex-Japan stock and Japan stock.

Why do unpopular groups tend to outperform? One reason is that investors overreact to both good and bad news. As a result, the most popular sectors attract floods of money that drive share prices up to unsustainable heights. Meanwhile, share prices in unpopular groups often fall to levels that more than reflect any temporary problems in a sector. The result: bargains for contrary minded investors.

Bear in mind that a battered sector may be in for more trouble before it rebounds. Right now, investors are looking askance at utility funds due to heavy debt and excess competition, especially in the beleaguered telecommunications sector. Stock funds that invest in Latin American markets have been hit hard by political and economic problems in countries such as Venezuela and Brazil. Funds that invest in the financial services industry have suffered due to financial weakness and scandals in the brokerage and banking businesses.

It's not hard to make a case that such funds will continue to perform poorly in the immediate future. What's more, unpopular groups don't always bounce back strongly, even over longer periods. The superior returns earned by 1999's wallflowers have been driven largely by precious metals funds, up 17.0 percent annually during the three years through 2002. The other two unpopular groups have not done nearly as well. Funds that invest in Latin America lost 13.7 percent during that period, while convertible funds lost 5.3 percent. Those returns compare with an 10.4 percent loss for the average domestic equity fund.

Conclusion: A blindly contrarian approach doesn't always work -- especially not in the short run. One approach is to buy a mix of funds. Morningstar recommends dividing a modest sum -- less than 5 percent of your portfolio -- among shares from three funds: one each from the three unpopular groups.

Also be sure that you are willing to hold those shares for at least a few years, to allow time for a turnaround in the sectors. And if possible, make your trades in the shelter of an IRA or other tax-advantaged account. That way, you won't have to worry about capital gains taxes and the like when you trade.

Interested in trying the strategy? Morningstar recommends several funds in the current unloved groups: financial services, utilities and Latin American funds. Their favorites include T. Rowe Price Financial Services (down 10.1 percent in 2002), MFS Utilities (down 24.3 percent) and T. Rowe Price Latin America (down 18.1 percent).

news.ft.com By Richard Lapper, Latin America Editor in Sao Paulo Published: February 24 2003 17:13 | Last Updated: February 24 2003 17:13 Global political uncertainty on the scale we are witnessing at present ought - on the face of it - to be bad for higher risk assets. But you would not get that impression from a cursory glance at what is happening in Latin America.

So far this year investors in Latin American bonds have made total returns of 3.1 per cent, following up on last year's gains of 7.1 per cent. Returns in some equity markets have been even more impressive, although shrinking liquidity means it has been very difficult to take advantage.

Since the beginning of November when it became very clear that fears of a debt default in Brazil had been exaggerated, yields have been dropping. In the last two months alone average spreads of all emerging market bonds over US Treasuries - the most widely accepted measure of political risk - have fallen by half a percentage point, with Brazil's yields down by one-and-a-half percentage points over the same period.

In January Latin American borrowers raised $4bn, the biggest amount of new issuance for three years. Liquidity is still pretty thin but dealing spreads are smaller than in the US corporate bond market and a number of banks have moved to overweight positions.

So why is this happening ? After all, the risks that have bedevilled the region in recent years seem to have been increasing. Venezuela faces especially serious problems, with local business confidence all but dead in the wake of an unsuccessful two month general strike against President Hugo Chávez. Argentina - which defaulted on its debt just over a year ago - is still some way from rehabilitating itself in international financial markets. President Luiz Inácio Lula da Silva is making good progress in Brazil but his economy is struggling, and last week's one percentage point increase in overnight interest rates - the fifth rise in the same number of months - will further damp consumption and investment in the short-term.

Part of the reason is that specialist emerging market and higher risk investors, high yields - and the good returns of last year - are attracting more buyers at a time of falling interest rates and depressed equity markets in Europe, North America and Asia.

Investors are encouraged that fiscal and monetary fundamentals are still intact in most parts of the region. Investors are hopeful that war could be good for some countries. Peru, now the world's second biggest exporter of gold as a result of massive foreign investment in the last five years, will benefit from the recent hike in gold prices.

Only Chile and the smaller Central American and Caribbean countries would be really badly hit by a rise in the oil price. Since most countries are either self-sufficient or net exporters. Even Brazil now produces about four-fifths of the oil it consumes.

Finally, as David Lubin, chief emerging markets economist at HSBC in London points out, the supply of emerging market assets has shrunk, as countries adjust to the broader increase of risk aversion since the Asian crisis and Russian debt default of 1997 and 1998 by reducing current account deficits.

"The collapse in capital flows has been very devastating but we are now living in a post-collapse world," says Mr Lubin. "This has created a more balanced market."

The problem though is that Latin America - in particular - is also extremely vulnerable to any heightened risk aversion among investors that might ocur if the war in Iraq were to be longer than is generally expected or if it were to be followed by a spate of terrorist attacks.

Guillermo Calvo, the chief economist of the Inter-American Development Bank, says that Latin American bond yields have been increasingly correlated with other high risk assets such as US corporate bonds, implying that any increase in risk aversion will directly impact the region.

"This is a completely different kind of contagion. It is very visible and coming from the north," says Mr Calvo. "You could have very strong winds blowing from the capital markets."

www.forbes.com Reuters, 02.24.03, 10:57 AM ET Latin America     By Marc Frank HAVANA, Feb 24 (Reuters) - Communist Cuba's foreign trade declined by more than $900 million in 2002, as a foreign exchange crisis forced Havana to slash imports by $677 million, the official daily Granma said on Monday. "Trade was $5.574 billion ... a 13.9 percent decline compared with 2001," Granma said, reporting on a Foreign Trade Ministry meeting over the weekend. Cuba reported 2001 trade was $6.5 billion, of which $4.838 billion was imports and $1.662 billion exports. Granma said imports declined 14 percent last year and exports 13.6 percent, or by $266 million. The trade deficit was $2.725 billion, a 14.2 percent decline from $3.176 billion in 2001. The trade decline was the first reported by Cuba since 1994, when it began recovering from an economic crisis caused by the demise of former benefactor the Soviet Union. The recovery has slowed since 2000, with the government reporting the gross domestic product up 1.1 percent last year, compared with 3 percent in 2001 and more than 6 percent in 2000. A 5 percent decline in tourism, low sugar prices, hurricanes, shrinking foreign investment and credit and the U.S. trade embargo left the country short of cash to import oil and other products in 2002, Economy Minister Jose Luis Rodriguez recently said. EUROPE AND THE AMERICAS DOMINATE TRADE Western diplomats reported exports of machinery and nonessential items such as cars and computers declined significantly, as did supplies for the sugar industry in the wake of Havana's 2002 decision to close half the country's mills. Europe accounted for 41 percent of Cuba's 2002 trade, the Americas 39 percent and Asia 18 percent, Granma reported. Havana's top trading partners were Venezuela, Spain, China, Canada and Russia in that order, unchanged from 2001. Granma said oil and its derivatives accounted for 21 percent of Cuba's imports last year, and food 20 percent of imports. Developing food trade with the United States was a special focus of the weekend meeting, Granma said. In 2000, the U.S. Congress loosened the trade embargo against Cuba to allow for the sale of agricultural products for cash. Cuba began purchasing U.S. food in December 2001, with 2002 representing the first full year of trade since the United States slapped sanctions on the Caribbean island in the early 1960s. The United States recently reported 2002 agricultural sales to Cuba were around $140 million.

www.petroleumnewsalaska.com Steve Sutherlin, PNA associate editor

U.S. Sen. Lisa Murkowski said if a provision to open the Arctic National Wildlife Refuge to oil and gas exploration is added to a budget reconciliation bill as expected, the “first major floor fight” on the issue might take place as early as the end of March.

Murkowski said in remarks to Commonwealth North Feb. 19 that she expects a huge battle in the Senate in the next six months over ANWR and a proposed North Slope natural gas pipeline, but there are reasons for optimism on both.

“It’s cold back east, and there’s lots of snow back east,” she said.

The economy is being hurt by high energy prices, and by concerns about stability of supplies, she said, adding that consumers are spending $100 million more per day for energy than one year ago.

Murkowski said reliance on supplies from political hot spots such as Venezuela and Iraq are winning converts to the cause of domestic production.

“Do you think these are islands of political stability?” she said. “I think not.

“If there was ever a time for a rational energy policy, it’s now.”

Murkowski said she recently had a face-to-face conversation with President Bush about ANWR, and he assured her the administration is committed to do whatever it takes to get the refuge opened this year.

Just say no to “either/or” The North Slope gas pipeline issue will likely be addressed in an energy bill this summer, Murkowski said. Her Democratic colleagues tend to favor the idea of a gas line, while opposing ANWR drilling. Republicans from gas producing states generally support ANWR drilling, but are concerned about the effect on prices if price supports are used to encourage the building of the gas line.

Murkowski said she is standing firm against the idea that Alaska should be happy to get a gas line instead of ANWR drilling, or vice versa, because the nation needs the energy from both.

“Demand is going to outstrip supply,” she said. “Alaska gas has got to be there.”

Another misconception Murkowski said she is encountering is the idea that renewable energy sources and alternative energy sources can take the place of ANWR or the North Slope gas line.

“It’s not an either/or debate, we have to have an interim, a bridge,” she said.