Our asset allocation is to reflect the extensive economic changes we expect in the next decade. Looser government control, coupled with free capital flows, and the prevailing entrepreneurial spirit may produce an 18th-century scenario - non-inflationary growth with occasional oversupply.

No longer counting on state pensions, the ageing population in the industrialised world has started to save. The public debt burden, the state's huge breadwinner liability - and European EMU adaptation - necessitate a tight fiscal policy, reducing the increase of the supply of bonds. Savings will thus chiefly be channelled through the stock markets to new production capacity.

Our short-term asset allocation is neutral to slightly underweighted in bonds with below-benchmark duration, as the Anglo-Saxon economies are close to - probably temporary - wage inflation which may spur extensive volatility. Japan's weighting is zero, the US is underweighted whereas continental Europe is overweighted. Due to the steep yield curve, an above-benchmark duration is attractive in Europe. Long term, we are ready to go slightly overweight with longer duration and high issuer credit quality.

Our approach to long-term asset allocation based on equities is unconventional, as we focus on sectors rather than on geographical markets; stock-picking has top priority. A global portfolio should comprise only 30 equities with satisfactory diversification and low risk.

We aim to have 60% in companies based on markets with fine structural growth which actively contribute to market restructuring. These companies are easily found in industries such as global pharmaceuticals, European oil, automation, industrial gas, global retailing, professional information media and telecoms.

Banks will be a growth sector, as new technology prompts major cost-cutting and new value-added services, not least within portfolio management. Traditional lending will suffer mounting margin pressures, but major well-positioned banks can consolidate and eventually trade at a premium.

The IT weighting should be 20%, half in hardware - Internet, telecom and auxillary equipment - and the rest in software and services, especially outsourcing. Market dominance and pricing power are vital to us.

Finally, we aim at 20% in geographical growth markets such as the Far East ex Japan and eastern Europe. In the Far East we look for dominant service and infrastructure companies, banks or insurers, leaving out manufacturing and property. In eastern Europe market position - and barriers to entry - are more important than sector, as demand potential is large.

Japan is the wild card this year, as the market may surprise on the upside, if the dollar - and stronger exports - finally boost consumption. The impact on interest rates and stock markets worldwide may be significant.

Erik Barlebo is chief executive of Carnegie Asset Management in Copenhagen

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