U.S. economic recovery

US EQUITIES
We believe there is still room for out-performance in the small and mid caps in the near term, driven by a U.S. economic recovery.

For the coming week, besides economic data such as ISM manufacturing, vehicle sales, factory orders, and the unemployment rate, which will be released the coming days, corporate' earnings would drive the markets and give a clearer picture of 2004 expectations.

Aflac Inc. (AFL, $36.88, CSFB: Underperform) is our long-term growth play, especially in Japan. However, concerns about its currently weak client base in the U.S. could pressure stock price. Investors would wait for AFL's result in its domestic market, neglecting sales in Japan, where the company makes about 75% of its revenue.

The company provides supplemental insurance to individuals, helping to fill gaps in consumers' primary insurance coverage. We recently increased our stop-loss level to $34.50 from $28, protecting a 9%-gain. We recommend to take some profits on the stock at current levels.

Northrop Grumman Corp. (NOC, $96.71, CSFB: Outperform) would report its quarterly figures coming Wednesday. We do not expect big surprise, but we hope to see clear guidance for 2004 from the company. We maintain our Buy recommendation for defensive investors due to NOC low beta vs. the S&P 500 (0.53), good fundamentals, and strong balance sheet.

We have been increasing the exposure to the materials and commodities sector gradually over the last two weeks, as profit taking activity has opened good buying opportunities in some of the stocks in the sector.

We continue to see further upside in the commodity and materials sectors, as we believe that under-investment in these sectors stocks as well as a gradually improving economy should drive share prices.

Last week we have added the industrial gas maker Air Products & Chemicals Inc (APD, $49.91, CSFB: Outperform) and the diversified chemicals maker E. I. Du Pont De Nemours & Co (DD, $43.90, CSFB: Underperform) to our Recommendations.

Air Products and Chemicals Inc. produces industrial gas and related industrial process equipment. The company also produces and markets polymer chemicals, performance chemicals and chemical intermediates.

Industrial gases are poised to benefit from an upturn in economical activity, while the company exposure to the medical sector provides certain stability in revenues.

The company during its earnings report confirmed that the manufacturing outlook in the US has improved and continues to accelerate in Asia. And the increasing demand in terms of volumes for specialty gases is also expected to offset certain pricing pressure.

Air Products also reiterated its full year 2004 EPS guidance of USD 2.35 - 2.65, broadly in line with analyst estimates, highlighting that it given the current positive momentum and lower tax rates earnings will be at the mid- to high- end of the range.

While Air Products is not yet running on full steam, an improving economical environment, tightening supply and demand balance for electronics provide a positive outlook for the company.

Indicative gross dividend yield stands at 1.86%.
Our 12- months target price is at USD 61, and we recommend setting a stop-loss level at USD 45.

E. I. Du Pont De Nemours & Co, which is a global chemical and life sciences company with businesses in high-performance materials, specialty chemicals, pharmaceuticals reported Q4 03 earnings and a positive signal was that the company saw volume growth across the board and total sales increased 14% y-o-y to USD 6.48 billion.

We believe that this positive momentum should continue well into 2004 and the chemical industry could well be in a major up trend in terms of profitability, thanks to improving pricing power.
For the coming quarter Du Pont projects earnings of USD 0.65 - 0.75 per share and of USD 2.00 - 2.20 per share for the full year 2004, compared to USD 0.53 in Q1 03 and USD 0.96 for FY 2003.

We believe that in particular the agriculture and nutrition, as well as the electronics / communications supply divisions should continue seeing solid demand. Over the last year the Du Pont share price lagged the increase in the S&P 500, but given the gradually improving fundamentals the stock should start picking up some momentum. Beside this the stock offers an attractive indicative gross dividend yield of 3.19%

We see USD 49 as a 12-month target price and would recommend setting a stop-loss level at USD 39.