Fears of a US recession, spurred by President Bush's economic rescue package, have brought equity markets to their knees. Trustees reviewing their positions should take comfort from the fact that valuations remain, in historic terms, quite attractive, with the FTSE 100 yielding higher than gilts. This was also the case in 2002/03, at the start of the last bull run.
Impetus also comes from the US Federal Reserve loosening monetary policy with a 0.75 percentage-point reduction in interest rates to 3.5 per cent, the largest drop in 23 years. Futures are also indicating a further 0.5 point drop. Allied to a raft of tax cuts and the start of a fall in energy prices, this should ensure that sanity prevails.
Help could also come from the Far East, where population growth and rising incomes mean an excess demand and finite or limited supplies. Commodities, energy, food, water and clean air will be scarce, creating social problems as well as economic and investment opportunities.
The world's population has almost tripled since 1950, when developed countries accounted for a third of the 2.5 billion population. By 2005, they accounted for a quarter of the 6.5 billion population. The UN predicts that the population will be nine billion by 2050, and 85 per cent of them will be living in emerging markets.
In 1900, 13 per cent of us lived in towns and cities. Estimates suggest this will rise to 60 per cent by 2030. Here, resource-hungry lifestyles will lead to an explosion of demand for commodities, water and energy.
In addition, the World Bank forecasts higher economic growth than in the previous 25 years. Global energy demand has increased by 2.6 per cent since 2000 - twice the rate of the previous 20 years. In China, per-capita consumption of oil is about one-thirteenth of that in the US and is comparable with that of Japan and South Korea at similar stages of their economic development. If China follows a similar trajectory, its demand for energy will rise 10-fold in the next 30 years.
The implications of this simultaneous growth in the size of the world's population, its average wealth and the desire by those living in emerging markets for a share of the prosperity enjoyed by those who are more secure are mind-boggling. All these factors need to be considered by trustees involved in portfolio construction.
- Dr Markas Gilmartin is adviser director at AWD Chase de Vere