'We have to remember that the economy is recovering, although extremely slowly, and, secondly, corporate profits bottomed out in the second quarter last year in America and are recovering,' he said. 'The problem is there is a cap on the upside. Why should the US market be revalued back to where it was?'

Mr Tracey expects that low nominal growth will keep a lid on corporate profits, trapping stocks in a valuation range of between 14.5 times earnings and 20 times on the upside for 'years to come'.

'The moral may well be that on days when markets are extraordinarily weak for whatever reason, that is a good level at which to buy equities. It gives you a chance to make a decision once you have made 20 per cent to get out again. This is a trading market that could last for yonks unless something on the economic front breaks,' he said.

Based on this theory, JPMorgan Fleming Asset Management has been shifting money into equities when markets have been particularly weak, including last July, August and October. The team has also played the relationship between equities and bonds.

'We talk about a big range in equities but the bond range has been big as well. You have this opportunity if you are smart and quick enough to be able to make the switch both ways,' he said. 'We funded our purchases of equities out of government bonds at quite a good time.'

The firm's equity allocations differ depending on the fund, but balanced funds, which are traditionally weighted 50:50 in bonds and equities, are skewed 65 per cent in favour of equities, with the direction being to buy on market weakness.

The call for a cautious return to equities echoes one Mr Tracey made back in July 2001, which he now admits was premature. He had expected markets to stall as they did in the 1991 bear market, but instead earnings and valuations had further to fall.

This time round, historically low interest rates add to the case for limited downside in stock markets, with dividends outstripping returns on bank deposits.

'In every market in the world equities yield more than cash,' said Mr Tracey. 'This is not a once-in-a-lifetime phenomenon but it is quite rare. If things get bad and the Federal Reserve cuts rates again then that discrepancy becomes even higher.'

Paying dividends fell out of favour in the latter half of the 1990s, particularly among technology companies. But the bursting of the Internet bubble followed by a rash of corporate scandals has brought price-earnings ratios and dividend yield firmly back into the equation.

'A cash dividend is cash, you can't fiddle it. It is a real measure of how a company is doing,' said Mr Tracey.

In an economic environment that remains hostile for companies, Mr Tracey is betting blue chips will bear the strain better than their smaller domestic peers.

Geographically, China is a long-term theme, although global funds at JPMorgan Fleming Asset Management are accessing the mainland market via companies listed in Hong Kong and Taiwan that will benefit from outsourcing and manufacturing in China or tapping into the vast domestic market.

Despite the fact that profits held up well last year in post-crisis Asia, the region ex-Japan still promises higher profitability and lower valuations than the US.

'In America we think there is precious little chance of a re-rating. In Asia you could argue that there is a chance that the big valuation discount to America might narrow. In the long run, that is what we are looking for - the possibility [of] earnings growth that is reasonably high but also some revaluation.'

Mr Tracey's theories are dependent on Wall Street stabilising, helped by low rates and fiscal stimulus. And as for the possibility of war and its effects on investments? He acknowledges that political concerns add to the risk premium - just as the 'peace dividend' of the 1990s helped fuel the bull market - but believes that the direct effect on stock markets is probably minimal.

Chris Tracey

1968: Became a stockbroker.

1973: Moved to Flemings as a technology analyst.

1976: Joined Save & Prosper as a fund manager.

1979: Was appointed to the board of Save & Prosper.

1988: Director of Fleming Invest ment Management.

1993: Investment director for Flemings balanced pension funds.

1998: Became global strategist for Flemings' pooled funds.