Strength in numbers

THERE is a lot of comfort in a consensus. All huddled together, the members give each other support.

But as any platoon commander will tell you, bunching up means one direct hit wipes out everybody.

Sometimes it's better to be a lone ranger, and that's how investment strategist David Roche of Investment Strategy may see himself.

This week has seen the raising of expectations of cuts in interest rates, inspired by remarks by a US Federal Reserve executive that the next shift in the Fed's rate could be down.

This was good enough for US stocks, which danced up to a new peak, with the Dow hitting a record 4553, and bonds also celebrating with the long-bond yield down to 6.559 on Monday.

So it's all talk of soft landing in the US, falling interest rates benefitting the markets, especially Hong Kong, and all's right with the world.

The Hang Seng didn't seem to see it that way yesterday, and slipped back by 35 points.

Perhaps local investors are looking as far ahead as Mr Roche.

His conclusions were that the global economy was not slowing down, or heading for a recession. It's still growing too far, too fast.

So while other analysts are factoring lower interest rates into their earnings forecasts for the next 12 months, the Roche view is that it's too soon to count on any cuts.

'We think the US economy will rebound in the latter part of this year,' he said.

'Japan will not implode and will make some recovery. Asian economies are racing ahead.

'Only in Europe, where the consumer remains dead, is growth likely to disappoint.' This overshoot of growth expectations would put upward pressure on interest rates, and with all the good news on soft landings in the market price, a correction was inevitable, he argued.

This is as true of Asia as elsewhere. For Mr Roche believes that it is the government printing presses which have pushed Asian equity markets this year, and overheating is on the way.

It now remains to be seen whether Mr Roche is about to be the founder member of a new consensus, or will remain as a lone ranger.