Interest rates
The first and foremost concern doing the rounds among global investors, especially those in the US, is the possibility of a rise in interest rates, which currently lie at their 45-year lows. Investors fear that any rise in these rates would restrict economic growth that had started to show some sustenance off late. The concerns were heightened when the Federal Reserve recently changed its stance on interest rates from 'patience' to following a 'measured approach'. The Fed is in a tight spot regarding any decision on this front. This is because if the Fed raises the rates now, it would hinder the economic growth process. On the contrary, if the rates are not raised, the inflationary pressure might intensify.

In case of India, any rise in the US rates is likely to have an effect on Indian markets as well. This is because the foreign institutional investors who have been investing into Indian (and other emerging nations) equities might pull out some money to re-invest in US bonds and treasury bills that are considered to be the safest in the world.

The China syndrome!
China has been, indeed, a very big factor contributing to global growth over the past few years. The country has in fact lead this growth through being a major importer of commodities like steel, aluminium and oil to feed its continued investments in infrastructure. As per a Morgan Stanley report, in 2003, the Chinese accounted for almost 7 per cent of global consumption for crude, 30 per cent of iron ore, a similar amount of coal, 25 per cent each of steel and aluminium products and 40 per cent of cement production. These indicators are enough to estimate the kind of dependence that had crept into the exporting countries on the Chinese consumer. And now, when the Chinese administration is planning to bring the economy to a soft landing, the repercussions of the after-effects of this slowdown is already visible in global commodity markets.

For India, the slowdown of the Chinese economy is not likely to mean much. This is because India does not rely excessively on external demand as a source of its growth. For instance, in 2003, while India's exports as percentage of its GDP were only 10 per cent, the contribution of Chinese export to it was very marginal. However, some adverse effects on domestic industries like steel and aluminium cannot be ruled out in the wake of a supply glut being created in the domestic markets on account of weakening exports to China.

Terrorism
Terrorism has been one of the grave concerns that has shadowed global economic growth over the past few years. First it was the September 11 attack in the US, then it was the Iraqi conquest by the Americans and then it was bomb blasts at Madrid. All these events are indicative of the danger of terrorism rearing its head time and again. India has had its share of the same as well (attack on the Parliament in 2001 and last year's bomb blasts in Mumbai). Terrorism not only leads to loss of innocent lives, it also brings economic activities to a grinding halt.

Apart from the above mentioned concerns/threats, there are several other factors like political instability and higher oil prices that has the potential to stall the global economic recovery that is currently in process.

In such times, therefore, the need of the hour for investors is to clearly define their risk-return profile. Also, they need to invest for the long term. This is because while the concerns mentioned above could impact returns in the short to medium term, sound economic fundamentals and good financial performance are likely to provide investors with adequate returns over a long-term. Happy investing!

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