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SCMP Reporter

FEDERAL RESERVE chairman Alan Greenspan is carrying the weight of the financial world on his venerable shoulders.

BNP Paribas Asset Management is among the many institutions betting he will not buckle under the Herculean task of restoring growth to the United States.

Judging who will be the victor in the grim struggle between Mr Greenspan and the darker side of the US economy is this year's key call for fund managers from Bombay to Boston.

'You know the joke,' said Alain Jegou, chief investment officer of BNP's Parvest family of funds.

'On the greenback it is written in G we trust. It is not God, we trust but Greenspan.'

For now, that is what Mr Jegou and his deputy Manuela Maccia are doing, impressed with the Fed chief's proactive approach.

'The dramatic response by the Fed cutting 100 basis points is eloquent I would say. For the time being we are confident in Mr Greenspan's view that we might have a rebound in the US economy provided the slowdown is only due to inventory adjustment and provided US consumer confidence does not collapse.

'I wouldn't be surprised to see a further 100 basis points in cuts by the end of the first half,' Mr Jegou said.

While believing Mr Greenspan can make growth rebound in the second half, Mr Jegou is not going overboard in Parvest's model balanced global portfolio. It has only 60 per cent in equities, down from 65 per cent last year.

'It is wise to have 40 per cent in bonds. If Mr Greenspan was wrong in the V-shaped recovery scenario and we are heading towards a U-shaped recovery, in that case bonds would offer value,' he said.

Parvest's portfolio demonstrates the confidence in Mr Greenspan through its equity weightings. There is 35 per cent invested in US stocks against 32 per cent for its benchmark.

By contrast, Japanese stocks only make up 4 per cent of the Parvest model fund against 7 per cent in the benchmark. That is despite the Nikkei-225 Index falling last year to test the 13,000-point level, the bottom end of the trading range since the bubble burst in 1990.

'There is no floor carved in stone. The Japanese economy is in a very awkward situation because of the public actions on both the monetary side and the fiscal side failed to trigger any recovery. Consumption is still extremely sluggish, industrial production, which had seemed to recover, is now heading south again,' Mr Jegou said.

'What remains at the disposal of the public authorities is to let the yen depreciate and I'm not even sure that is going to have a very positive effect on the economy.

'So we are faced with a classical liquidity trap problem because of the imbalance between savings and consumption. We don't see any clear and positive outcome for Japan and so prefer to be significantly underweight and to be short on the yen.'

Ms Maccia said Euroland was a different case entirely, and should look good in a few weeks after some negative news.

'We have got the impression that analysts in Europe were quite resilient in revising down earnings expectations. The movement is underway now but it is not over probably. Our European fund managers are a bit more cautious in the short term. But on a fundamentals basis it is more positive in the longer term,' Ms Maccia said.

Euroland's stubbornly high unemployment rate is coming down thanks to job creation. Reforms are freeing up rigid labour markets leading to a brighter consumer demand picture. The battered euro should continue its recovery against the US dollar and BNP Paribas expects it to reach parity in the next six to nine months.

'Once we break the parity psychological value it could go further. Fair value is considered at around 1.04,' Ms Maccia said.

That should remove a big stumbling block for Asian investors who have fought shy of Europe because of its fragile currency.

Mr Jegou said: 'This is probably a very good time for non-euro investors to consider European assets and especially European stocks with a mid-term horizon.'

Alain Jegou

1974: Graduated with a diploma in  political sciences in Paris.

1976: Graduated with a bachelors  degree in business law.

1978: Assistant economist with  the central Bank of France.

1985: Bank for International Set tlements economist in  Basle, Swtizerland.

1988: Head of fixed income and  money markets with BNP.

2000: BNP merged with Paribas,  promoted to chief invest ment officer for Parvest.



Paribas' money on Fed chief