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Financial directions - Glass half-full for global economic recovery.
(From Financial Director)
Economic background
The one thing threatening to spoil the feast of economic data for equity investors has been the spectre of higher interest rates - financial markets have been quick to assume that economic recovery will be followed by tighter monetary policy. However, these fears eased during December as projections derived from futures markets of US, UK and European interest rates for mid-2004 fell by 0.25% or more.
We believe that global economic recovery will be sustained into 2004 and the growth in corporate profits can keep equity returns ahead of those from bonds and cash. That said, the prospect of revaluation above profits growth has diminished with the sharp rise in markets over the past nine months. In addition, a more optimistic consensus on the economic outlook raises the risk of short-term disappointment.
Equities
The combination of continuing economic buoyancy and less pessimism that interest rates will rise sharply in the months ahead proved favourable for equities. In local currency terms, the main global indices rose by more than 4%, although US dollar weakness reduced the return to sterling investors
UK
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