Global Economy Will Grow over Next Twelve Months, Baring Asset Management Says.

BOSTON -- Baring Asset Management (BAM), the global institutional investment management firm, expects reasonable growth in the world economy over the next twelve months, but monetary tightening and higher oil prices are now clouding the outlook, according to BAM's July Strategic Policy Report.

On a global basis BAM's analysis means the group is underweight in equities relative to bonds. In equity markets the investment group is most optimistic about Singapore and Hong Kong; neutral on Australia, Emerging Markets, Japan and the UK, but underweight in US and Eurozone equities.

"We are neutral on the UK market which, although it looks fairly cheap by most measures, does not look as if it will rise much," said Hayes Miller, Senior Vice President and member of Baring Asset Management's Global and EAFE portfolio management team. "We believe the 25 basis point base rate rise from the Bank of England on August 5 further indicates their resolve to slow housing related prices, and contributes to possible policy imbalances in 2005 between the UK and other OECD economies."

Mr. Miller noted the UK economy could be at risk if the Bank of England takes an overly interventionist line, where higher interest rates may destabilize the UK housing market. This could be followed by sharp rate cuts in 2005, at a time when other central banks are still increasing the interest rates, triggering a sharp setback in Sterling.

If Europe's moderate recovery continues, BAM may take a more optimistic view of the region, especially if recent positive developments in labor flexibility spread further in France and Germany.

While the US economy is not yet showing signs of stalling because of Fed tightening, BAM maintains that data indicates the US economic growth has peaked, with more sluggish growth expected into 2005.

"We think the Fed will want to remain behind the curve to encourage a moderate degree of inflation back into the system before it starts the next round of tightening," said Mr. Miller. "If the economy looks like it's growing at a modest pace, it will provide the Fed with the excuse to be even slower in raising short-term rates. This leaves the US Dollar vulnerable to either weaker growth, or poor inflation performance."

With Chinese growth rates well down from last year, BAM is confident that Chinese authorities are beginning to control their booming economy. Consequently, BAM expects the authorities to loosen controls in the next two months, which will lead to buying opportunities in the Asian region.

While BAM remains convinced that Japan has turned the corner, in the absence of any strong drivers over the next few months, it has trimmed back positions in the expectation of better buying opportunities later in the year. Consequently, this month saw a reduction in BAM's global asset allocation to Japan, with a switch from overweight to neutral.

"Despite strong earnings figures, equity markets are becoming increasingly nervous that they have seen the best growth rates for this cycle," said Mr. Miller. "Monetary policy is shifting to a tightening stance, raising the possibility of slower activity going forward, while oil prices have risen to worrying levels. We find few markets or sectors where valuations are compelling and therefore expect equity markets to remain under pressure over the next few months."

About Baring Asset Management

Baring Asset Management is part of ING Group, one of the largest financial institutions in Europe. ING Group employs over 115,000 people in over 50 countries.

BAM follows a Growth at a Reasonable Price (GARP) equity investment strategy. Its approach focuses on identifying favorable earnings surprise and valuation characteristics through fundamental research, and it seeks companies, sectors and markets whose attractive growth prospects are not fully reflected in their prices.

More information about Baring Asset Management can be found at www.baring-asset-us.com.