Keep an eye on inflation and deficits

The winning themes of 2003 have continued to make the running in the opening weeks of the current year. Commodities, emerging markets, smaller- and medium-sized companies and technology have all made a firm start, while the more defensive areas have generally made little progress. A similar pattern applies to bond markets, with investors demonstrating a continuing appetite for risk by showing a clear preference for emerging market and high-yield corporate bonds over government bonds. The latter have been held back by concerns over rising issuance and by the realisation that the interest r...