Global growth is relentless. The US is going from strength to strength. Japan actually outperformed the US in the first quarter, and the rest of Asia is also doing well. Only Europe is disappointing.

However, it is important not to lose sight of the risks in this global recovery and thus equity markets. We see these as the three main risks:

1. Higher US interest rates: Low interest rates have helped to finance increased consumer spending. As rates start moving higher, this stimulus is eroded. In addition, higher US interest rates can have the effect of drawing capital flows back to the US at the expense of, in particular, emerging markets. In the long run, we believe this will be less of an issue for Asia than elsewhere, but it could cause significant short-term volatility.

2. High oil prices: This is bad news for most of the world, including Asia, as it reduces the amount of money available to be spent elsewhere. While recent developments have been encouraging, the demand for oil is rising and supply constraints are increasingly binding. Therefore, the risk of a damaging spike in oil prices cannot be ruled out.

3. China slowdown: This is the focus for Asia. A gradual slowdown would be welcomed as it increases the sustainability of domestic growth, but the authorities will be keen not to overdo it.

Overall, we continue to believe that the global economic environment is likely to be strong through 2004 and into early 2005. In 2005, higher US interest rates and an ensuing US slowdown will likely replace high oil prices as the major threat to the global recovery.