Storebrand Investments Monthly Report - December 2002

1. Monthly report December 2002 Storebrand Investments • Headlines • Storebrand Investments maintains its recommendation from the previous month of a moderate overweight in shares. • The macro news in November has been positive, especially in the USA. • The pricing of the stock markets remains moderate even after last month’s revival. • We have upgraded European shares from underweight to neutral, but maintain our recommended preference for their American counterparts. • European companies continue to suffer from a high euro and have still not managed to cut costs to the same degree as their American competitors. Storebrand Investments still feels the Japanese stock market is interesting. • An improvement in the American economy will provide a good stimulus for Japanese companies. • In our assessment, the market is being too pessimistic about the outcome of a restructuring of Japanese banks. • Latest news – the bond markets • USA • The Federal Reserve, America’s central bank, cut interest rates by a further 50 basis points to 1.25% at the beginning of the month, a larger cut than the market had anticipated. Together with several positive macroeconomic indicators, the reduction in rates contributed to generating some hope of better economic growth in the future. • Europe • The European Central Bank has kept its rates unchanged at 3.25% since November last year. The bank has now signalled that it believes inflationary pressure is lower, but also that the risk of weaker growth is higher. The market is therefore expecting the bank to cut rates by at least a quarter of a percentage point at its meeting on Thursday, 5 December.

2. Latest news - the stock markets USA The revival on the American stock market was maintained in November, but at a weaker tempo than in October. The sectoral rotation continued with a shift from defensive to cyclical sectors, due primarily to the fact that the economic indicators over recent weeks have generated hope of a somewhat better economic development than the market could picture just a few months ago. Among other things, retail sales over the Thanksgiving holiday were clearly better than expected, while at the same time leading indicators of capital investments are starting to point in the right direction. In addition, the Fed cut rates by 50 basis points. All sectors rose, with the best being IT, materials and telecommunications, with increases of 15.5%, 9.3% and 9.2% respectively. The weakest sectors in November were consumer staples, energy and health. Europe The month of November did not provide any signs of an improvement in the economic situation in Europe, but the rates cut and the break in the trends in American economic indicators led to a general rise. While the news from industry and the finance sector was negative, mobile telecom operators came up with some good results, and positive statements from Nokia and Philips about sales development also contributed to the climb. The market continues to enjoy a positive momentum. The sectors rotated, the market players came out of defensive shares, while cyclical growth and financials rose. Japan The Japanese stock market climbed for the first time in six months in November following a powerful price surge in the second half of the month. Expectations of increased investments in technology and capital goods in the course of 2003 meant that the rise on the international markets finally rubbed off onto Japan. In addition, fears of a hard landing in the Japanese economy receded somewhat, although the consequences of the government’s initiatives in the banking sector remain unclear. The willingness among market players to take risks increased significantly in November. A number of shares that had gone into serious decline rebounded strongly on high volumes. Technology, telecommunications and materials led the way in November, followed by consumer discretionary and industrial shares. Financial shares fell further in value, but so did defensive sectors such as energy and consumer staples. Indices and key figures at 29.11

3. Our view of the market Positions: Shares: Moderate overweight Bonds: Moderate underweight Money market: Moderate overweight Regional distribution – shares USA Moderate overweight Japan Moderate overweight Europe Neutral Norway Neutral Outlook – the bond markets USA The macro news was generally better in November than in October. In particular, the news from the business sector has begun to point in the right direction, confirming the good trend from company information concerning the fourth quarter. The labour market seems to be stabilising: the number of redundancies is decreasing, although it is still difficult to find new work. Consumers are more optimistic, but are not spending more money than before. The Federal Reserve cut rates by 0.5 percentage points on 6 November, which was more than the market had expected. Fed chief Alan Greenspan said at the same time that this was an insurance against weak macro indicators in the months to come. There will therefore have to be a great deal of bad news before rates are brought any further down. On the other hand, the Fed wants to be absolutely sure that the economy is sailing with the wind behind it and that unemployment is on the way down before it hikes rates. The market believes this will happen in the autumn of 2003. Storebrand Investments believes the better macro news will continue and recommends a moderate underweight in American bonds. Europe The news from the European economy was also a little better than the previous month, but not as good as that emerging from the USA. In particular, it is consumers who seem to be having a better time of it. Industry is struggling, and unemployment is constantly on the increase. On the political side, a freer interpretation of the stability pact is now being discussed, with countries with a small foreign debt in relation to their GNP to be allowed a larger budget deficit. This will be particularly favourable for Germany, which will then be able to afford a more expansive financial policy. The European Central Bank disappointed the market by holding interest rates unchanged. More recently, however, a majority of the bank’s members have expressed the view that inflation is under control and that they are more worried about the sluggish growth. Several have also stated that they will in the end vote for lower rates. It therefore seems highly probable that rates will be reduced by 0.25 or 0.50 percentage points at the next meeting on 5 December. We believe the European economy will lag behind America’s regardless of whether we enjoy a boom in future or not. Storebrand Investments therefore continues to recommend European bonds in preference to their American counterparts.

4. Outlook – the stock markets USA Analysts’ estimates of earnings in the fourth quarter are holding at a reasonable level, while at the same time small cuts are being made to earnings estimates for next year. The mood improved a touch in the course of November, and investors feel slightly more confident that an economic upturn is on the way, albeit at a steady tempo. Risk aversion has decreased significantly, but the situation in Iraq still poses a threat. Many are taking a war into account, but at the same time believe the conflict will be short-lived. We believe there would have to be a scenario of a long war that spreads to other countries in the region before there will be serious consequences for the price of oil. But in any case a war will have a negative impact on sentiment and will increase uncertainty at least until the contours of the outcome become clearer. Pricing in relation to earnings and interest rates remains moderate seen in comparison to the last five years. Storebrand Investments sees a good trend developing in company earnings and continues to recommend a moderate overweight in American shares. Europe Earnings estimates are still too high, and we expect that the downgrading we have seen here will continue. Firms in Europe are beginning to show signs of adapting to a weakened earnings situation and have started to make redundancies. Nevertheless, European companies still have much to do before they are as competitive as their American competitors. In Europe, too, the pricing of shares is moderate, set against earnings and interest rates, but the strong euro continues to be a problem for earnings growth. We therefore believe that there is greater potential in the USA than in Europe. Storebrand Investments recommends a neutral weight in European shares. Japan There continues to be great sense of unease related to the banking sector in Japan, and rumours have been circulating that at least one large bank is about to be nationalised. Although the Japanese authorities have dismissed the rumours, the banking index has spiralled down. The banks seem to be taking responsibility in their own ranks and have begun to cut costs. The turn in the economy is proceeding, but at a lower speed than before. Better signs from the American macro economy, an overly depressed mood related to Japanese banks and a moderate pricing of Japanese export companies are all factors contributing to Storebrand Investments’ continued recommendation of a moderate overweight in Japanese shares. Assumptions The Neutral Position A neutral position is assumed to be a fairly well diversified portfolio of assets distributed on a variety of sectors and geographical areas. Overweight – Underweight Any deviations from a client’s neutral position is either an ’overweight’ or ’underweight’ of asset class, sector or geographical region. A full over-/ underweight position is assumed to be approximately 20 percentage points deviation from the neutral position. Moderate Over-/Underweight An asset class, sector or geographical region that is over- or underweighted only 10 percentage points, relative to a neutral position, is said to be moderately over- or underweighted. Currency Effects The recommended asset allocation is based on expected return measured in local currencies. Short term investors with unhedged international positions should be aware of gain/loss due to fluctuations between domestic currency and other currencies. Generally Depending on asset class and tax system, a variety of costs may occur due to investor’s effort of rebalancing the portfolio. Such costs are not included in our analysis. The content of this report is a service to the market. Storebrand Investments does not take reponsbility for possible errors in the information provided. Future expectations should not be considered as promises or guaraties. The content reflects Storebrands evaluation. Storebrand Investments is not responsible for any loss or damage as a result of using the information in this report.