The outlook for nations, as opposed to simply companies, remains more mixed. It is clear that Governments in many countries will need to continue to inject money into their economies. It is for this reason that we remain concerned about medium term inflation, and in this context note with concern the recent decline of Sterling in foreign exchange markets which, while potentially boosting exports, increases the cost of all imported raw materials and goods. Should this become a significant problem we may well see Sterling interest rates rising rather faster than fixed interest markets envisage, with negative connotations for those markets.
On balance our view is that equity markets, with further prospects of rising dividends over time, continue to provide good value in a climate where, globally, we are beginning to see the return of better growth. Cash remains a certain loser in real terms, and with this in mind we are beginning to look to reduce fixed interest exposure within portfolios as we see risk in this sector starting to increase.