We recommend focusing on our themes especially the 'energy' and 'dividend paying' themes (page 3 of 3)

Although the reforms will address some of the failings of the German labour market and are therefore to be welcomed, they stop a long way short of the radical overhaul Germany needs.

Given the above we recommend focusing on our themes especially the 'energy' and 'dividend paying' themes.

CSFB upgraded their 2003 oil forecast for Brent from USD 22 to USD 26 and for WTI from USD 23 to USD 28.50, which moves them to around USD 3-4 per barrel above consensus for 2003. According to CSFB, the increase reflects low inventories following disruptions to the Venezuelan supply, a very cold winter in North America and a view that there is now a greater likelihood of supply disruptions in the event of war in the Middle East.

Given uncertain geopolitics, we stick to our 'energy' theme and reiterate our positive stance on TotalFina (FP FP; EUR 120) and ENI (ENI IM; EUR 12.481). In addition to providing an oil price hedge, both of these stocks come with an attractive dividend yield of 3.8% and 6% respectively.

CSFB published another piece in which they reiterate the attractive risk-reward ratio for French banks. We would like to reiterate our call on BNP Paribas (BNP FP; EUR 38.34) and Societe Generale (GLE FP; EUR 48.86). Besides being well capitalised (tier 1 ratio stood at 8.1% at the end of last year for both compared with an average of 7.7% for the sector) and highly cash-generative, both of them have built strong franchises in most of the markets and segments in which they operate. In addition, their business mix is well diversified with around 60% retail, 15% asset management and 25% corporate and investment banking. BNP Paribas is trading on a 8.6x 03 PER and Societe Generale on 9.6x. This compares to 9.4x for the sector, which remains low due to the cheap valuations of UK bank. With an expected dividend yield of 3.5% for BNP Paribas and 4.7% for Societe Generale, both of the stocks are included in our stock picks under the theme 'dividend yield'.

In addition, the French banking regulator approved the take-over of Credit Lyonnais (CL FP; EUR 54) by Credit Agricole (ACA FP; EUR 14.3). This makes a counterbid by BNP Paribas very unlikely and at the same time increases the attractiveness of Societe Generale as the next possible take-over target.

Roche (ROG VX; CHF 79.9) announced over the weekend that it obtained approval for the marketing of Fuzeon (drug for AIDS treatment) in the US. The launch was expected in the first quarter and its realization supports the fact that Roche has demonstrated in the last months that it is competitive in both clinical development and marketing of specialist drugs. We reiterate our Buy.

As expected, Nokia (NOK1V FH; EUR 13.44) gave a rather bearish mid quarter update and narrowed its 1Q guidance towards the lower end of the range. In particular, Nokia expects Mobile Phones sales to be at the lower end of its earlier guidance 0 - 9% and EPS guidance was revised down from EUR 0.15- 0.19 to EUR 0.15-0.17. The new guidance for Networks is also below consensus at a decline of 15-20% and continues to disappoint. Due to weaker than expected volumes and higher 3G costs, management expects a 'substantial pro forma loss' (incl. Restructuring charges) in this quarter. This is especially negative news for Ericsson (ERICB SS; SEK 5.6). We remain cautious on the whole sector as with the current delay in improvement if end demand we believe the sector will continue to struggle for some time to come.