LONDON, 17 November 2003 — Evidence continues to support the case for a global expansion. The most eye-catching number was that for US GNP in the third quarter, which showed an annualized growth rate of 7.2 percent. It is obvious that this big number reflects some special factors — tax cuts and child credits came through during the quarter. Also, the tail end of the refinance boom was still powerful, reliquifying many households. Notwithstanding these “one-off’s”, other statistics suggest that the US economic expansion is continuing to gain traction. The trend in new jobless claims has been falling since April. Consumer confidence numbers are trending better. So are the leading indicators.

Outside the US, developments are most promising in Asia. The shift toward sourcing production and services out of the developed world toward China and other Asian countries continues apace. In many cases, currencies are pegged to the US dollar, so price competitiveness remains phenomenal. There are increasing signs that the Tiger economies on Asia’s Pacific rim are developing a mutually reinforcing growth process. At the margin, this has contributed to Japan’s somewhat unexpected cyclical recovery this year.

Of the major industrial regions, Europe has been notably weak. The strong euro has not helped. We note, however, the improving trend in business confidence in Germany, despite continuing poor figures for employment and industrial production.

Our assessment is that a global economic upturn has begun and will continue through next year. However, we project a relatively moderate acceleration in growth 2004. At present, the expansion process is too dependent on the US, where the current account deficit is unsustainably high and where consumers need to replenish their savings. This cyclical upswing will hit the resistance barriers earlier than usual.

This brings us to the big uncertainty regarding the investment environment — namely, the potential for inflation will not pick up. Indeed, it could fall further in 2004.

What does all this imply for investment policy? The promise of continuing (albeit modest) expansion and continuing low interest rates suggests a cyclical bias. In our total return portfolio we have some focus on equities and, within that, an emphasis on cyclical sectors. In bonds, we favor corporate credits, especially in the high yield area.

So far as investment grade bonds are concerned we believe that markets made a major peak in June and now have a reduced allocation. With cash rates low and investment grade bonds not especially attractive, we make a significant allocation to alternative investments. Our focus here is on low risk instruments aimed at producing a superior return to cash.

(Habib F. Faris is vice president at Clariden Bank, London.)

(The information contained here in is for information only and should not be construed as an offer or a solicitation to purchase, subscribe, sell or redeem any investments. While Clariden Bank uses reasonable efforts to obtain information from sources, which it believes to be reliable, Clariden Bank makes no representation or warranty as to the accuracy, reliability or completeness of the information.)