www.thestar.com Mar. 19, 2003. 11:22 AM JAMES DALZIEL CANADIAN PRESS

North American stock markets were narrowly mixed early today as investors took a cautious approach in the high likelihood of an imminent U.S.-led war against Iraq. The countdown to an attack continued as long columns of U.S. troops, armoured vehicles and trucks advanced toward the Iraqi border, positioning themselves to invade if Saddam Hussein misses the Wednesday night deadline to surrender power.

Toronto's S&P/TSX composite index moved 24.01 points higher to 6,462.62 after closing up 31.98 points. The junior TSX Venture Exchange was flat at 1,061.

Hopes for a short war also fired up the American dollar, in turn driving the Canadian currency lower by 0.31 of a cent to 67.51 cents US.

The euro was quoted at $1.0598 US, down from $1.0621.

The loonie had climbed 0.26 of a cent Tuesday after Bank of Canada governor David Dodge reiterated in a speech in Rome that more interest rate hikes will be needed to get Canada's inflation back down to the central bank's targets.

New York's Dow industrial average rose 12.98 points to 8,207.21 after advancing 52.31 points Tuesday, moving up a total of 669 points in the past five sessions. The Nasdaq lost 9.27 points to 1,391.28 after edging 8.28 points higher Tuesday while the S&P 500 was up 1.51 at 867.96.

In corporate news, DuPont Canada's U.S. parent is offering $1.4 billion to take the firm private. The two companies announced today that DuPont will offer $21 a share to buy the 24 per cent of DuPont Canada Inc. stock it doesn't already own. DuPont Canada shares were unchanged at $17.24.

Softness on the Nasdaq came after software maker Oracle Corp. reported a cautious outlook for a recovery in technology spending late Tuesday.

The company posted a 12 per cent rise in fiscal third-quarter profit and said revenue grew modestly, helped by growth in sales of software upgrades to existing customers.

But the company said revenue from new software licences and sales of its flagship database product line each fell four per cent. Its shares were down 78 cents to $11.47 US.

Generally, stock markets have been driven higher since the middle of last week as investors look to the rally that followed the start of the 1991 Persian Gulf War and hope that history repeats itself.

"There's a hope that a swift victory will create a perverse twist in Wall Street theory: Sell on the rumour and buy on the fact," said market commentator Bryan Piskorowski of Prudential Securities Inc. in New York.

But there's plenty of reasons for caution, including the possibility of torched oil fields, use of biological weapons and terrorist attacks.

Crude oil prices added to Tuesday's drop in prices, down 57 cents in New York to $31.10 US a barrel. The Toronto energy sector was flat, but Suncor Energy rose 25 cents to $24.88.

On Tuesday, prices in New York plunged $3.25 US a barrel in the biggest one-day drop in almost a year.

While U.S. crude inventories remain uncomfortably low, OPEC producers other than Iraq and strife-torn Venezuela have been increasing production for weeks.

Much of that oil is now in storage or in tankers on the high seas, say oil analysts. Saudi Arabia is believed to have as much as 50 million barrels in storage in the country and more en route to other storage facilities. That's enough to replace Iraq's 1.5 million to two million barrels a day for about a month.

Gold moved lower with the price of the metal slipping $1.50 to $335.70 US an ounce. Kinross Gold retreated 14 cents to $8.85.

On the Toronto market, financials provided most of the lift as Scotiabank gained 60 cents to $52.30.

Active stocks included Celestica, down 25 cents to $19.60. CAE tumbled 42 cents to $3.75 after the firm announced a debenture issue and Coolbrands International surged 45 cents to $6.90.

Shares in Quebecor World lost 72 cents to $23.90, on top of Tuesday's 24.5 per cent plunge, after chief executive Michel Desbiens suddenly resigned only a few weeks after he took the job. The huge printing company also issued a profit warning.

In other corporate news, shares in Transat A.T. Inc., a major travel company and operator of Air Transat, were unchanged at $5.63 after it slashed first-quarter losses and revenue jumped 20 per cent from a year earlier. Losses came in at $7 million, down from a $17-million loss a year earlier.

Air Canada shares were off four cents after the firm drafted a plan to cut $200 million in labour costs by closing two call centres, cutting 30 per cent of the jobs in the remaining centres and slashing some employee wages by 27 per cent.

Overseas, Tokyo's 225-issue Nikkei Stock Average rose 96.58 points, or 1.21 per cent, to close at 8,051.04, led by key exporters including automaker Honda and technology issues Nikon and Sony.

Hong Kong shares enjoyed a second consecutive day of gains, with some traders placing bets ahead of several key earnings announcements. The Hang Seng Index climbed 117.08 points, or 1.29 per cent, to 9,158.59.

London's FTSE 100 index rose 45 points or 1.2 per cent to 3,792.3 in late-afternoon trading, and Frankfurt's DAX and Paris's CAC 40 indexes each rose about two per cent.

www.financialexpress.com Our Corporate Bureau

Mumbai, March 18: The war fears may be dampening for the trade and industry in general, but shipping has been an exception with the upward movement in freight rates. The tanker and dry bulk segments have seen a spurt in the average daily earnings since the last weeks of January this year.

According to Clarksons, Suezmax tankers quoting a rate of $48,473 per day on January 24, 2003 has gone up to $56,891 per day, while an Aframax tanker has jumped from $36,612 per day to $62,633 per day. Freight rates for clean products has moved from $22,632 to $29,589 for the same period.

Besides the possibility of a US attack on Iraq, a GE Shipping spokesperson attributed it to the recent harsh winter resulting in depletion of petroleum reserves. This, coupled with the race to build an oil inventory across all countries with a stagnant tonnage, resulted in an increase in freight rates, he added.

Further, crude production in Venezuela rose following the 2-month strike being called off in that country. However, the crude production in Venezuela is yet to reflect on the freight rates as the production is yet to reach the necessary scale, he added.

However, according to an Essar Shipping spokesperson, it is difficult to predict whether the current freight rates would be able to hold on as the future looks uncertain. Essar Shipping, however, stands to gain as it has five of its six Suezmax on ‘spot’ basis, while one tanker has been on time charter for a period of six months. GE Shipping, on the other hand, has entered into fresh agreements for time charter in February 2003 with agreement expiring at various periods during the year.

Dry bulk rates too have increased in tandem with tanker rates. In the Capesize segment rates have firmed up from $19,042 per day to $22,533 per day on February 28, 2003, while rates for Handymax went up from $9,625 per day to $10,125 per day for the same period. However, freight rates for Panamax vessels came down from $12,428 per day to 11,378 per day. The improvement in the freight rates in the dry bulk segment has been attributed to steel movement in China. Moreover, the upswing of construction activity in China too has added to the increase in freight rates, an Essar Shipping spokesperson said.

sg.biz.yahoo.com Wednesday March 19, 1:58 AM By Mike Esterl Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Don't bet on oil prices crashing to earth or the U.S. economy surging anytime soon. Nibble at Latin American debt but steer clear of their stocks. And treat the foreign exchange market as a huge wild card.

That was the cautious assessment of Merrill Lynch in Tuesday's "War Trade" conference call on how to make money - and avoid losing it - in emerging market equities, bonds, foreign exchange and oil as the U.S. prepares to invade Iraq.

Mike Rothman, the investment bank's senior energy market strategist, warned clients that extremely low global oil inventories - about 130 million barrels below normal levels - will curb any plunge in crude prices even if war in the Middle East is a swift and tame affair.

Crude prices on the New York Mercantile Exchange dropped below $33/barrel Tuesday, down from a recent high of $39.99/barrel in February, after U.S. President George W. Bush late Monday gave Iraqi leader Saddam Hussein 48 hours to leave the country or face military action.

But Merrill Lynch is sticking to its 30-day target price range of $35.50-$46/barrel and a 60- to 90-day range of $27-$33/barrel - far higher than the sudden drop to $20/barrel in early 1991, immediately after a U.S.-led coalition began its first full-scale invasion of Iraq.

"There really is not fat comparable to what we saw 12 years ago," said Rothman, citing output shortages in Venezuela and the threat that Iraq will torch its own oil fields.

Higher oil prices are underpinning Merrill Lynch's forecast that the U.S. economy will grow an anemic 2% in 2003. That in turn could limit the upside of beaten-down emerging market equities - which have shed 7.6% in dollar terms so far this year according to Morgan Stanley's MSCI index - as companies scale back earnings forecasts amid weak consumer demand.

"Iraq is just the latest in a series of excuses why the global economic recovery has failed to materialize," said Ed Butchart, the bank's chief emerging market equities strategist.

Merrill Lynch is recommending a defensive posture in emerging market equities, preferring emerging Europe and Asia over Latin America, where economic growth has been weakest.

The firm has a neutral recommendation on Turkey, which neighbors Iraq and has been scrambling to decide whether to allow the U.S. to use its military bases. "The outlook is effectively almost changing on a day-to-day basis," said Butchart.

Merrill Lynch is more bullish on emerging market debt - but more cautious than most investors, who have plowed into the asset class in recent months, pushing the year-to-date return on the J.P. Morgan Emerging Markets Bond Index-Plus to 6.6%.

"We are neutral the market," said Tulio Vera, the bank's chief emerging market debt strategist, who cautioned that risk aversion could flare up again if the U.S. invasion of Iraq doesn't go smoothly.

Risk aversion levels in the emerging market bond market are currently at their lowest levels since early 2001, Vera added.

Merrill Lynch has overweight recommendations on the bonds of a handful of smaller Latin American countries, such as Colombia, Peru and Ecuador, where economic growth has been strongest and debt spreads still have room to tighten after regional solvency issues peaked last year. It's market weight on Brazil and Mexico, and underweight Venezuela and Turkey.

Yianos Kontopoulos, the bank's chief global foreign exchange strategist, is forecasting a period of great volatility and unpredictability in major currencies after the U.S. dollar rallied sharply Monday.

He said investors have been unwinding recent bearish positions on several currencies but that it's still too early to tell where they are headed in the near term.

"Basically we're still standing at a cusp and it's possible to move in both directions," said Kontopoulos.

But he cautioned investors from piling into the recent rally in the Mexican peso, which strengthened Monday at MXN10.77 to the dollar after sinking to a historic closing low of MXN11.22 on March 4.

"I think at levels of around MXN11, it's probably something that's consistent with at least the current macroeconomic picture," he said.

Some investment banks have been scaling back their growth forecasts for Mexico amid continued shakiness in the U.S. economy, which absorbs more than 80% of Mexican exports.

-By Mike Esterl, Dow Jones Newswires; 201-938-4026; mike.esterl@dowjones.com

www.bday.co.za

THE low price at which Telkom listed has been criticised and praised in government and business circles. At R28 a share, Telkom was valued at R15,6bn on listing, against a valuation of R19bn when a 30% stake was sold to US and Malaysian investors in 1997.

While there is lots of upside potential for small investors, the lower-than-expected valuation has left Ucingo Investments, the empowerment group which holds 3% of Telkom, in a pickle.

Ucingo acquired its stake in the phone monopoly in 2000 at a share price of more than R33, funding the R566m bill entirely through debt financing.

This took place during the midst of the telecommunications boom globally, and lenders presumably envisaged enormous growth potential for Telkom.

Shortly after Ucingo took delivery of its shares, the 3% stake was valued at about R3bn. Ucingo had grand plans. These included selling a portion of its holding after Telkom listed, hopefully at a profit. The proceeds were to be used to establish about 360 telecentres over five years, at a cost of about R100m. These would include telephones, photocopiers, computers, faxes and access to the internet.

However, with Telkom's valuation sliding along with the bursting of the telecoms bubble, Ucingo is facing a cash crunch. It has turned to government for help, no doubt pointing out that another black economic empowerment failure will not do the empowerment initiative any good.

Government appears unwilling to intervene, and rightly so.

What could it do, anyway buy back the 3% stake for more than it is currently worth? That seems unlikely. However, if Ucingo is unable to restructure the debt the lenders may decide to foreclose, leaving the bankers holding a stake in Telkom.

Given the experience of Ucingo and other empowerment groups, more innovative ways of empowering companies in a bear market must be considered.

More or less is right

TOWARDS the end of last year the SA Institute of Chartered Accountants called on its members to comment on the changes the International Accounting Standards Board proposed making to its rules on the treatment of share-based payment systems.

The board wants companies to recognise all share-based payment transactions in their financial statements, including share options and phantom share schemes. SA auditors' collective response to this proposal is not yet known, but from the point of view of shareholders the issue is clear-cut there is no respectable argument against the expensing of share options. They are a form of compensation that involves an economic cost, so it makes no sense for accounting rules to treat them any differently from cash compensation or the award of actual shares.

The global technology sector remains implacably opposed to expensing, and understandably so. By some estimates, having to expense share options would cut many tech firms' reported profits by as much as 70%.

As was to be expected, the most voluble opponents are in the US, where the Financial Accounting Standards Board announced earlier this month that it was reopening the debate. Round one was won by Silicon Valley after intense lobbying. However, too many corporate governance scandals have been revealed for them to pull that off again.

There is room for debate over how the cost of options should be calculated, and there are sound arguments that the most commonly used method, the Black- Scholes model, produces excessive values.

Yet protests that estimates of stock option expenses are only approximations are disingenuous many accounting steps are approximations. Anyway, it is better to expense inaccurately than not to expense at all.

If US growth stops

THE threat of war is not the only impediment to the US economic recovery. The post-bubble adjustment continues: excess capacity has not gone away and companies remain focused on balance sheet repair.

The decline in stock market wealth is one reason for concern about US consumer spending. That, along with a weak jobs market and war fears, explains why the US Conference Board's index of consumer confidence fell to its lowest in nine years in February.

However, clearly the rise in oil prices, with West Texas Intermediate crude up from $25 a barrel in November to as high as $38 at one stage, is worrying when the US economy is already at stallingspeed. High energy prices eat into corporate profitability but expectations concerning the capital spending recovery should already be modest.

Of greater concern is the tax effect on consumer spending; income spent on fuel is desperately needed to keep other industries afloat. Unfortunately, the consensus that oil prices will quickly recede following a short war in Iraq may be too sanguine. While the northern hemisphere winter is coming to an end, the International Energy Agency has highlighted the Organisation of Petroleum Exporting Countries' limited spare capacity.

Venezuela's problems continue, and inventories in oil exporting countries are low. If the US is forced to dip into its strategic petroleum reserve, that will have to be replenished.

Goldman Sachs commodity researchers argue that, even in the event of a short war, oil prices will remain volatile. They could average in the mid-30s this year, rather than falling to the mid20s in line with the consensus.

To a large extent the fate of SA and the rest of the world economy rests on the US. Morgan Stanley estimates that the US has accounted for two-thirds of total global growth since 1995. If the US economy stumbles again, neither Europe nor Japan look ready to take over as a growth engine.

Cape Editor Dave Marrs edits The Bottom Line. E-mail to bottomline@bdfm.co.za

Mar 18 2003 06:49:43:000AM Business Day 1st Edition

www.msnbc.com By Paul Blustein THE WASHINGTON POST

March 18 — Four trading days ago, financial markets the world over seemed on the verge of melting down because of fears that the impending war against Iraq would inflict severe damage on the global economy. NOW THE markets are sending a jarringly different message about the war: Bring it on — because the sooner it’s over, the faster the world’s major economies can begin to mend. As if rejoicing over the dissipation of a perplexing fog, investors issued a collective roar of approval yesterday to weekend news indicating that the United States and its allies would allow no further time for diplomacy before attacking Baghdad. The Dow Jones industrial average, which had fallen close to five-year lows last Wednesday morning, rose 282.21 points, or 3.6 percent, to close at 8141.92, the fourth straight day of gains. Oil prices dipped, and the main stock indexes of Britain, France and Germany, which were plumbing depths in the middle of last week not seen since 1997, posted percentage increases almost as large as the Dow’s. The jumps capped the biggest three-day rallies in recent memory for the London and Paris exchanges and the biggest for German stocks in 15 years. An exception to the positive trend was the Tokyo stock market, where the Nikkei index fell 1.6 percent to close barely above its 1983 level. [In early trading today, however, the Nikkei rebounded strongly, rising 2.3 percent, to 8050.94.]
Fueling the gains was the widespread belief that the odds favor a relatively short war, and that whatever the benefits and drawbacks of an attack, at least an end is in sight for a period during which war jitters — and the accompanying rise in oil prices — have kept businesses from pursuing expansion plans and consumers from feeling in a buying mood. But as the recent market downturns suggest, worries abound that the invasion will lead to a political and military quagmire, with possible fallout ranging from anti-American uprisings in Islamic countries to the destruction of Middle East oil fields to terrorist attacks on U.S. soil. So while the commencement of hostilities will probably prove a tonic for listless economies if the war goes smoothly, dangers to the economic outlook remain huge, analysts warn. “The worst thing for markets is uncertainty, and after the summit on Sunday, it’s clear the war is likely to start this week,” said Stefan Schneider, chief international economist at Deutsche Bank AG in Frankfurt. “So now people think, if this whole thing is unavoidable, it’s better to get over it soon, so we don’t have all these negatives weighing on the economy.”

FRAGILE GLOBAL ECONOMY But Schneider shares the concern of many other experts that the global economy is fragile and that recessions could hit in the United States and the European Union — the world’s two biggest economies — because of the potential ramifications of war, including the prospect that oil prices fail to subside or rise even further. Crude oil prices rose to a 12-year high of nearly $38 a barrel last week, though the price settled at under $35 yesterday.
“If oil stays above $30 a barrel for the remainder of the year, that could well do it for both economies,” he said, adding that Europe is particularly vulnerable because its economy is already crawling at about a 1 percent annual growth rate. “It wouldn’t take too much of a negative impact to push euro-land into recession,” Schneider said, referring to the 15 nations that use the euro.

SIMILAR TO ’91? If there is one thing economists agree on these days, it is that forecasting has rarely been more difficult, given the imponderables about how the war and its aftermath will proceed. But broadly speaking, the debate over the economy’s future divides analysts between those who believe chances are high that the upshot to the war will closely track the events that followed the first Persian Gulf War in 1991 — when oil prices plunged and stock markets surged — and those who doubt such an outcome is likely. “We think this looks just like 1991 — the pattern of stocks is the same; the action in oil is almost the same,” said Frederick P. Leuffer, senior energy analyst at Bear Stearns & Co. “You’ll recall that the night the war started, within five minutes of the first bomb being dropped, oil prices fell from $34 [a barrel] to $20 — whssst, straight down.” The same will be true this time, he predicted, “unless Iraq torches its fields, or if there’s not some exogenous problem that we can’t foresee.” But others contend that current circumstances are very different. In 1991, “the U.S. economy benefited from the fact that everyone perceived America had won a clear and decisive victory,” David Hale, an independent Chicago-based economist, wrote in a newsletter last week. “The clarity of the outcome had an immediately beneficial impact on oil prices, stock market prices, and the confidence of both companies and households. It is far from clear that the coming war will produce as decisive and clear an outcome.” Even a quick victory over Iraq leaves open a host of ugly possibilities, Hale noted — insurgent actions against occupying U.S. forces being just one. Beyond that fundamental issue lie differences over several other crucial points.

GAUGING OIL PRICES Among the most important is whether conditions in oil markets are ripe for a price decline. Optimists reckon that a “war premium” of as much as $10 to $12 a barrel has been built into prices because of fears about nightmare scenarios in which extensive destruction of oil facilities could cause crude to shoot into the $60 to $80 range. That premium will evaporate, many energy specialists believe, once it is clear that missiles launched by Iraqi President Saddam Hussein haven’t hit neighboring countries’ oil fields and refineries. “He could act like a complete lunatic and destroy his own oil industry in desperation,” said Leo Drollas, chief economist at the Centre for Global Energy Studies in London. “But I personally doubt it, and if all goes smoothly, we’ll have a little bit too much oil, causing prices to fall once we get into April and the summer.” But a gloomier view holds that oil prices will stay high regardless, because the market is reflecting reductions in world oil supplies associated with turmoil in Venezuela and other factors. “Right now, inventories are at the lowest level in 30 years. The last time they were at this level, Dick Cheney and Don Rumsfeld worked for Jerry Ford,” said Philip K. Verleger Jr., an energy specialist at the Council of Foreign Relations. And even if President Bush and other world leaders order a release of crude from their nations’ strategic reserves, the downdraft in prices will be short-lived, Verleger said, because as soon as prices fall below $30 a barrel, the Organization of Petroleum Exporting Countries will curb production. The effect on the major industrialized economies of hikes in the price of foreign crude is not as severe as it once was, optimists say, because of energy efficiencies that have been achieved since the first oil shocks of the 1970s. Paying OPEC more for oil once imposed a stiff “tax” on the U.S. economy, but per dollar a barrel, that tax has abated over time. In 1980, oil imports were about 3 percent of U.S. gross domestic product; in the fourth quarter of 2002, they were 1.1 percent. “But regardless of the fact that we are less dependent than 30 years ago on energy, and the impact of a $1-per-barrel increase is not as large as it used to be, if you get a lot of dollars of increase, it’s going to have an impact,” said Richard Berner, chief U.S. economist at Morgan Stanley, who said that because of the danger that prices will stay high, “we’re flirting with a double-dip [recession].”

WAR’S OUTCOME Finally, there is the ultimate, unknowable question of how the war will affect business and consumer confidence. John Llewellyn, global chief economist at Lehman Brothers in London, puts the risk of global recession at 30 percent because he believes the public has not factored in the potential cost of rebuilding Iraq’s economy and controlling its ethnically fractured populace. “Even if this goes militarily quickly, the peace may be long and expensive,” Llewellyn said. “That’s the potential shock to confidence. People will realize that the United States, and other allies, are going to get bogged down in a long, expensive process. That will not be good for confidence.” Other indicators: The Nasdaq composite index rose 51.94, to 1392.27; the Standard & Poor’s 500-stock index rose 29.52, to 862.79; the New York Stock Exchange composite index rose 142.32, to 4783.95; the American Stock Exchange index rose 5.58, to 820.65; and the Russell 2000 index of smaller-company stocks rose 11.01, to 365.40. Advancing issues outnumbered declining ones by 8 to 3 on the NYSE, where trading volume rose to 1.67 billion shares, from 1.52 billion on Friday. On the Nasdaq Stock Market, advancers outnumbered decliners by 2 to 1, and volume totaled 1.84 billion, up from 1.57 billion. The price of the Treasury’s 10-year note fell $11.25, and its yield rose to 3.84 percent, from 3.70 on Friday. The dollar rose against the Japanese yen and the euro. In late New York trading, a dollar bought 118.44 yen, up from 118.34 late Friday, and a euro bought $1.0635, down from $1.0745. Light, sweet crude oil for April delivery settled at $34.93, down 45 cents, on the New York Mercantile Exchange. Gold for current delivery rose to $337.10 a troy ounce, from $336.50 on Friday, on the New York Mercantile Exchange’s Commodity Exchange.