LONDON, 23 February 2004 — Investment managers’ current strategy assumes a continuance of the global economic recovery in 2004. The upswing is being led by the United States and Asia. US growth should reach 4 percent in 2004. Economic policy is now highly stimulative. Inventories are still relatively low and any normalization would boost output. Meanwhile, strong housing starts in the second half of last year imply good consumer demand over the next few months.
Asia is the other pillar of the global growth process. Chinese growth approaching 10 percent is, of course, nothing new, but as that economy has more than doubled in size over the last ten years, the impact on world output is now much more significant. India is also shaping up to be another fast-growing giant economy. Growth there has averaged around 5 percent per annum over the last decade but looks set to exceed 6 percent this year. Consensus forecasts for the “Tiger economies” on the Asian Pacific rim average around 5 percent for 2004.
Growth rates elsewhere are much less strong, though in most emerging market and developed economies the picture is improving. Thus, one can talk of a synchronized global recovery in 2004. As this is rapidly becoming the “consensus view”, it may be worth considering the risks that might prevent it coming to pass.
An obvious risk is that of an accelerated slide in the dollar. This would have serious adverse effects on Europe (especially Germany) and Japan. Second, a sharp rise in commodity prices, especially oil, would also slow economic activity, though the investor can protect his portfolio exposure to energy and raw materials businesses, as recommended by the investment managers. However, there is not much worry about inflation this year. Although the risk of higher inflation rates is down the road, reported price pressures should remain very low in 2004. With the above in mind, an asset allocation strategy advocates a minimal cash position and believes that superior returns are available in bonds, equities and in the alternative investment arena.