The key to the strength of the current bull market in equities has been the extended decline in short- and long-term interest rates everywhere. Key to this has been the absence of synchronised economic recovery across the globe.

Looking ahead, there appears to be little immediate threat to this scenario. Certainly individual companies overly exposed to the entire Pacific Rim are likely to encounter operational problems and markets may regularly wobble on earnings warnings/disappointments. However, interest rates are set to remain low. Hence the aggressive cash underweight in our portfolios.

The continental European economy is now clearly on a recovery path, underscoring a favourable earnings backdrop. Combining this with the continuing drive to restructure and the benign interest rate scene argues for a strong position in European equities despite recent strong performance.

In contrast with Europe, UK growth is set to come off the boil. This should lead to medium-term weakness in sterling as interest rate support unwinds and the currency's status as a safe haven against uncertainty surrounding the euro becomes less relevant. Currency weakness should ensure that UK equities remain attractive, particularly to domestic investors awash with cash.

Japanese economic recovery is likely to remain elusive, as will a sustained recovery in the equity market. Monetary policy can hardly be relaxed further, so the burden falls on fiscal measures. Concern over demographicpressures on the public deficit should ensure that investors are ultimately disappointed. Likewise Asia is set for an economic and market profile akin to that experienced by Japan during the 1990s.

That leaves the US. The position in the cycle argues against overweighting equities but the dominance of US companies in the IT revolution and other global industries suggests that a neutral position at least is warranted. Earnings resilience has been marked and private sector inflows continue to support prices. Scott Jamieson is at Scottish Mutual Assurance in Glasgow

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