Perhaps the most significant event in the world of global economics before last-minute present buying took precedence was the news that China had “mislaid” more than a million businesses. Economic statistics had consequently understated the size of the Chinese economy, meaning that growth had been even greater than the impressive numbers already disclosed. This year, China is likely to leapfrog into fourth place in the economic league, overtaking France and ourselves.Then, as the last of the turkey disappeared into curries, flans or pies, a row erupted between Russia and the Ukraine over the gas supply. Although swiftly resolved, it sent a tremor through energy markets. The tensions that can develop between those countries possessing natural resources and those seeking to consume them became all too clear. Russia’s record as a supplier of gas has been good but this is the second recent spat. Supplies to Belarus were interrupted a year or so ago. Gas prices have been rising and the muscle-flexing by the Russian bear certainly kept energy traders on their toes. Consumer nations are likely to be looking at building a mix of energy supplies to ensure they cannot be held to ransom by a single producer. Neither of these stories is negative for shares. Natural resources are becoming an important component in our domestic index while we may come to rely on Chinese consumers to support economic growth in the years to come. Stockmarkets certainly started the new year in fine form. The FTSE 100 breached 5,700 and it was beginning to look as if forecasts for the end of 2006 could prove a tad cautious. It was not just seasonal cheer driving markets. The news flow has been benign, too. December appears not to have been the blood bath for retailers which was generally expected. Next disclosed profits significantly higher than analysts’ expectations. This was due in part to a good management team exercising tight cost control but it seems that both volumes and prices have held up better than feared. The picture across the whole retail spectrum will not be uniform but there are indications that the corner has been turned. Consumer credit figures, suggesting that Britain’s indebted consumer society is starting to get a grip on borrowing, backed the case for a further cut in interest rates. The upturn in mortgage lending supported the contention that the housing market has stabilised. Of comfort, too, was the suggestion that monetary tightening in the US may be coming to an end. The Fed has raised rates aggressively during the past year but it looks as if we are approaching the peak of the cycle. One immediate effect of the minutes of the open market committee’s December meeting was to drive the dollar down but it did encourage share prices on both sides of the Atlantic. There is no reason to believe we are returning to the double-digit gains that characterised the 1980s and 1990s but last year’s market performance and this year’s prospects confirm that it was wrong to write off equities as an asset class in the wake of the last bear market. But that is no reason not to continue to embrace asset diversification. Figures from the IMA suggest the investing public are beginning to return to the equity market. I hope conditions support their confidence. Stockmarket volatility has reduced in recent years but could return. Such conditions would favour hedge funds and make the business of stock selection trickier for conventional managers.