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There are reports that investor confidence in Germany, Europe's largest economy, has improved unexpectedly to a six-month high on the back of evidence that economic activity may be about to pick up. The ZEW Center for European Economic Research in Mannheim has reported that its index of institutional and analyst sentiment rose to 36.3 in March from February's 35.9. Economists had expected the index to fall to 35, according to the median of 42 forecasts in a Bloomberg survey.

In January, German retail sales increased the most in seven months as tax cuts boosted incomes and consumer confidence. This increase in retail sales, along with rising exports and industrial production at the start of this year, has added to signs that the country's economy may overcome high unemployment to return to growth after an unexpected contraction of 0.2% in the final quarter of 2004.

The European Central Bank President, Jean-Claude Trichet, has indicated that rising oil prices still pose one of the biggest risks to the European economy because they could increase inflation while stifling growth. The Bank has lowered its 2005 growth forecast to about 1.6%, from its previous estimate of 1.9%, on an assumption that oil prices will average USD44.7 per barrel this year. Following this revised forecast on economic growth within the eurozone, the ECB left interest rates on hold at a six-decade low of 2% on March 3.

In the UK, the Bank of England Monetary Policy Committee held the base rate at 4.75% for the seventh month in row last week. However, it is reported that almost half of City economists believe there will be a quarter-point rate rise before the summer. A leading member of the MPC has reportedly indicated that interest rates are unlikely to rise ahead of the forthcoming UK General Election, which would fit with the MPC's tendency to alter rates in months during which it publishes a new set of inflation forecasts. Concerns that there will be a further rise follow the publication of the MPC's February forecast, which showed inflation rising above the 2% target. This is despite the fact that official retail sales figures are expected to be weak.

Looking at UK equities, it is now two years since the UK stockmarket ended its three slide. Since 12 March 2003, the FTSE 100 index of blue chip stocks is up 52% while the FTSE 250 index of midcap stocks has fared even better up 91%. Market reaction to today's UK budget is awaited.

On the currency front, the US dollar slipped as Saudi Arabian plans to increase production were opposed by a number of other leading oil exporters, including Algeria, Libya. With higher oil prices likely to worsen the US trade deficit, the dollar fell to 0.3 cents USD1.3387 against the euro, 0.9 cents to USD1.9211 against sterling and YEN0.4 to YEN104.49 against the yen. However, it now appears that a consensus among OPEC members to increase supply has been reached.

Nonetheless, crude oil rose 0.1% to USD55.01 a barrel on the New York Mercantile Exchange on the back of speculation that demand led by China may outstrip the ability of OPEC and other producers to increase supply.

A look at Friends Provident's Most Popular funds that have attracted maximum investors in the month of February 2005.

Fund Code	Fund Name	Risk Grade	Currency	Bid Price (as of 28 Feb 2005)	1 mth (%)	6 mth (%)
J30	JF India	5	USD	1.804	4.40	36.87
J47	JF Thailand	5	USD	0.824	5.64	33.12
J60	Templeton Emerging Markets	5	USD	0.989	8.68	28.94
J74	Investec GS Strategic Value	4	USD	1.661	4.60	24.70
M55	Baring HK & China	4	USD	25.412	6.06	19.19
P06	Thames River Eastern Europe	5	USD	3.924	13.02	42.02
P18	Collins Stewart Aggressive Managed	4	USD	1.441	3.30	14.37
P33	Aberdeen Int'l China Opportunities	4	USD	1.806	3.67	13.30
P40	Value Partners High Dividend	4	USD	1.057	3.73	11.85
S198	AHL Diversified Futures	5	USD	16.897	3.32	10.80

Please note that past performance is not neccessarily a guide to the future.

It is a good time to invest in the emerging Eastern European Markets whose performance in the last year has been remarkable.

A look at 2004's performance shows that the markets of Emerging Europe generally finished the year strongly. Both Hungary and the Czech Republic carried on the positive momentum they have shown all year and rose around 6.0% in US Dollar terms during the month of January 2005 despite a lack of newsflow. Poland, however, was the strongest performer of the Central European countries as the market benefited from an easing in the recent spate of new equity issues which had absorbed a lot of market liquidity. The Russian market declined as sentiment was negatively hit by an exorbitant tax claim against mobile telephone operator Vimplecom. Even though the claim was eventually reduced by around 90% the market was wary of further claims against other listed companies. The Turkish market was the best performing market as the European Union finally agreed to begin accession talks without the hindrance of unpalatable conditions which many had expected.

The financial sector was driven strongly by Polish banks as liquidity in the Polish market caused a buying frenzy despite their already rich valuations. Central European telecom stocks also performed well; Cesky Tel benefited from news that the government may well sell its stake to a strategic investor rather than via an equity issuance, TPSA was helped by general Polish buying while Matav recovered after a long period of underperformance. Energy stocks underperformed on the back of the weak Russian market.

We feel the negative reaction to the Vimplecom news in Russia was overdone and the market still offers long term upside. In Turkey the market should benefit from increased liquidity following the agreement to begin EU accession talks.

Two funds that invest in the Eastern European Markets are - Baring Eastern Europe & Thames River Eastern Europe.

The Baring Eastern Europe fund was launched on Sep 1996 and since then its compound annual growth rate has been 25.35%. Its last 1 year's performance is 47.23%.

The Thames River Eastern European Fund has grown 273.3% since its launch. Its last 1 year's performance is 36.2%.

If you want us to send across fact sheets of these funds please write to us at - Contact@TA-Asia.com.

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Disclaimer:Please note that the information provided in this newsletter has been obtained from various public sources and is sent to you by way of information only. TA & Associates Asia Ltd. can accept no liability of any sort in relation thereto and readers should seek relevant qualified advice from an authorized party before making any decision which may have any financial or other impact. Also, neither the information nor the opinions in the newsletter constitute, or are they to be construed as, an offer or a solicitation of an offer to buy or sell investments.