group predicts gentle recovery in world economy with total gain for UK equities of 7.5%
Higher oil prices, a weaker dollar and the Sars virus are the three main threats DWS sees to its scenario of a gentle recovery in the world economy and markets.
Even so the group is forecasting a total gain from UK equities for the year of 7.5%, with 5% from gilts and 2% from sterling.
The oil price is in a trading range of $26-$28 per barrel and Johanna Kyrkland, head of asset allocation at DWS Investments, told Investment Week's Markets Forum this month she would feel more comfortable if it were to fall to $20. At its current level the group sees the oil price as the biggest threat to its market predictions although Kyrkland did not see it as disastrous.
She said the main reason it is so high is because there is not enough supply of oil, rather than because demand is driving up the price.
The dollar has been coming down quite rapidly during the course of 2003 and DWS's hope is that the depreciation is gradual.
Kyrkland added: 'The US has been the consumer of last resort, buying up from other countries, but we would like to see more balanced growth around the world. A lower dollar discourages imports and encourages exports, making the US more competitive. Asian central banks are moving to offset the impact of the weaker dollar by buying up the US dollar and this is curbing the appreciation of their own currencies.'
Sars is the risk DWS is least worried about because it sees the impact of the disease dissipating as the number of new cases drops.
Overall DWS predicts central banks continuing to follow a loose monetary policy to help stimulate the economy, a strategy they can follow without stoking up inflation.
Kyrkland pointed to US capacity utilisation running at 75% and the fact unemployment is still quite high as reasons why wage costs will be muted.
She added: 'Low interest rates will provide an anchor to bond markets but risks are to the downside on a 12-month view.'
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