Equity markets are set to recover later this year, led by the US market, according to Hibernian Investment Managers (HIM).

Its 2003 Investment Outlook predicts a pick-up in the US economy in the latter part of the year, with a gradual recovery in corporate investment spending.

Against this background, HIM's investment manager, Mr Martin Nolan said he expected the three-year decline in share markets to end this year, with profit growth of 8-12 per cent likely in aggregate for global equities and returns of about 10 per cent for the year.

HIM's corporate earnings forecasts for the major markets are well below average stockbroker forecasts. Nonetheless, it believes the overall cheap level of equities - now at their lowest level for more than a decade on a price-earnings basis - point to value in the market. Corporate earnings in the US are recovering, it poins out, quoting detailed surveys from the US Commerce Department, and after recent price falls the yield on equities compares well with government bonds.

Companies, particularly in the US, also have more free cashflow to invest in their business or engage in mergers and acquisitions, which will also support markets, HIM believes. On this basis, it plans to move its investment portfolio from a neutral position in equities now to an overweight position later this year, hoping to benefit from a global economic upturn. However, it concedes that a prolonged conflict in the Gulf could still delay recovery in investment markets.

HIM believes that the US market will offer the best opportunity, given the more optimistic growth outlook for the US. However it also sees value in the Irish market, currently trading on a p/e of around 12, which will continue to benefit from a strong and diversified group of major companies and buy-outs of some of the smaller stocks.

In sectoral terms, HIM sees best value this year in financial, industrial, healthcare and materials stocks and advises investors to avoid the energy, telecommunications and consumer staples sectors.

Looking at the economic picture, Ms Fiona Adkins, HIM economist, said that while the Celtic Tiger was "wounded" growth here continued to be at the top of the OECD league. She estimates gross domestic product growth of 4.5 per cent in 2002 and 3.5 per cent in 2003. Inflation this year is likely to remain stuck at over 5 per cent, she believes.

Ireland is losing competitiveness through wage inflation, infrastructural problems and the fall in the euro, she warns. While inward investment from the US could pick up next year, by then Ireland will be facing new competition for such investment from the Czech Republic, Poland and Hungary.

While expecting a US recovery later this year, Ms Adkins said the outlook for the euro zone remained poor. Constrained by Germany's poor performance, she is forecasting euro-zone growth of just 1.6 per cent this year.