GLOBAL - Most analysts say the signs augur well for continued global performance in 2004, particularly for equities in relation to bonds.
Expectations are high for emerging markets to return, and for small and mid-caps to repeat their performance too.
“The outlook for 2004 is starting from a point of relatively high output and enthusiasm, in direct contrast to last year,” said Keith Wade (pictured), Schroder’s chief economist.
In fact, only two issues dominate the worry list for 2004: the US dollar’s continued depreciation and the risk associated with the American current account imbalance.
Within the US, consumer spending will hold up for the first few months of the new year, said Wade, although he warned consumer spending is already at near-record highs, leading him to question where extra demand would come from.
Also, with 2004 being an election year, so the theory goes, there is no great percentage in betting on fiscal tightening by the Bush administration. Emerging market stocks are set to outperform by most people’s reckoning.
“We continue to believe that emerging markets will be the best performing asset class,” said Humphrey Carey, F&C’s head of emerging markets.
“The long-term argument for emerging markets is that their economies grow at a faster pace, based on population, the fact that GDP per capita is lower, and their share of world trade is growing.”
F&C picks out Russia, with its strong credit rating heavily underpinned by high oil prices, and China. “China clearly is the engine of the asset class,” noted Tony Broccardo, chief investment officer for F&C..
Another equities sector tipped to do well is small and medium caps. “2003 was a good time for small and mid caps,” said Broccardo. “We’d expect small caps to do as well as large caps next year.”
Haydn Davies, chief economist for Barclays Global Investors, predicts a continued slide for the dollar. “With US [bond] yields likely to remain unattractive for some time and with sentiment towards the currency soft, the US dollar’s slide looks set to continue,” Davies said.
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