Wealth Management Research Update

May 23. 2006 - Data Source: UBS Wealth Management Research

Research in Focus:

UBS research focus - Asia's ascent

This UBS research focus report entitled, "Asia's ascent," provides an assessment of the long-term economic growth outlook for several Asian countries and the corresponding implications for investment opportunities in the region. The report also shows the expected impact of Asia on global financial markets.

Daily Market News:

Economic News

Malaysia: No change in monetary policy
In line with our expectations, Bank Negara (BN) left the Overnight rate unchanged at 3.50%. A lower CPI in April diminished the pressure on BN to tighten monetary conditions. Nonetheless we think that BN will have to tighten further this year as inflation might accelerate again.

Switzerland: Unadj. March retail sales slightly up
March retail sales adjusted for sales days dropped 6.8% (real) and 7.2% (nominal). The drop was the first since May 2005 but not that serious as Easter holidays (traditionally high retail sales) fell in April this year. Unadjusted figures for the month were up 0.7% (real) and 0.2% (nominal).

Equity Markets

Daily Swiss Equity Market Comment
The Swiss stock market ceded ground again on Monday, closing 2.42% lower. This put the index back below its level at the start of the year. Companies operating in Latin America and Asia - like ABB and Holcim - were among the losers on fears that the emerging markets could be hit hardest by higher interest rates. Only Kudelski and Nestlé notched up small gains. Swisscom traded slightly lower; this despite a newspaper report saying that the regulatory commission had given the green light for the sale of Swisscom shares currently held by the Swiss government. Heavyweights Novartis and Roche both moved lower. The day's losers included financials like Zurich, after Citigroup lowered its price target for the stock. Julius Baer and Credit Suisse lost ground too. Unaxis dropped another 7.9%, extending the 15% loss incurred last week.

Daily European Equity Market Comment
The major European stock markets continued their decline on Monday. Bad performance of Asian stock markets as well as higher commodity prices depressed the markets. The best performing sector, although trading in negative territory, was Food. The worst performing sector was Basic Resources that slumped due to lower metal prices. The decline was led by Anglo American and Antofagasta. Also among the laggards were the Construction & Materials and Financial Services sectors. Among the best performers of the DJ EuroStoxx 50 were BT Group and Diageo. The shares of Alliance & Leicester advanced amid speculations that Crédit Agricole might bid for the mortgage lender. BASF announced to raise its bid for Engelhard to USD 5 billion, adding that the offer is "final". The shares of BASF slid on the news.

Daily US Equity Market Comment
The markets traded lower on Monday as the uncertainty of interest rates and the sentiment of slower economic growth linger around investors. Dillard's gained 4.6% after the retailer posted a 61% increase in its quarterly profit due to upscale merchandise. NYSE Group dropped 2.2% after the owner of the largest stock exchange made a cash and stock offer of $10.2 billion for Euronext NV Europe's second largest stock exchange. Tyson Foods rose 4.4% after the meat processor soared on speculation that chicken exports will improve as concern over the bird flu epidemic lessens. Yahoo, profited 2.4% after an article by Barron's reported that its shares may climb as much as 70% on the company's redesigned website and its Japanese unit. Investors withdrew positions from U.S Steel and A.K. Steel, who dropped 6.7 and 7.3% respectively, as investors speculated their recent rise might have been overdone. Atmel rose 6.9% on news RDG Capital may offer to buy the semiconductor maker for $2.7 billion.

Daily Asian Equity Market Comment
Asian markets fell, led by Japan, Hong Kong and Australia as lower oil and metals prices triggered slides in commodities-related companies in those countries. The Indian market fell 10.2% on heavy selling by both foreign and domestic funds. Main losers were Reliance, Infosys and ITC. This triggered a one-hour suspension. The market rebounded after trade reopened. Markets were also affected by the People's Bank of China's annual report published today, which said that the Central Bank will clamp down on industrial expansion, hence reducing the demand for copper and steel. The Hong Kong market fell 3% as a result of the report, led by commodity producers such as CNOOC Ltd. and Jiangxi Copper Co. Australian mining stocks such as BHP Billiton and Zinifex Ltd. led the Australian market lower by 1.4%.

Forex Markets

CHF: Hildebrand supports CHF
SNB's Member of Directorate Hildebrand did not reveal clear clues about size and timing of the next rate move. However, he claimed that GDP growth has reached a point that in the past would have caused inflation to rise. Therefore a rate hike in June is likely and the CHF remains well supported.

USD: Sentiment remains USD negative
EURUSD recovered to levels above 1.28 after ECB's Trichet delivered hawkish comments and IMF's Rato classified recent currency movements as orderly and right. Statements like these are likely to keep sentiment in FX markets USD-negative and to put a ceiling on USD corrections.

AUD: We close our AUDUSD short-trade
Our AUDUSD short-trade, issued at 0.771, reached the lower target at 0.750 and fell to 0.746. We close the trade with a gain of more than 2.5%. From current levels we see limited AUDUSD downside potential. A move back to 0.7470 and a return to the old range is not expected due to broad USD-weakness.