HSBC Private Bank has moved fully overweight equities, saying market valuations remain overly cautious.
The bank believes that the investment environment has significantly changed since the summer, as markets are now moving away from a recession and deflation scenario, supported by additional monetary policy stimulus.
Investor confidence is picking up, the banks says, and there is increased risk appetite, providing support to riskier assets.
"We have upgraded our view on equities and favour high yield bonds over sovereign debt or investment grade credit," said the bank in a note. "Conversely, we have grown more concerned about the return prospects for sovereign debt, given record low yields and rising inflation expectations."
Looking to the first quarter of 2011, the banks said it expects to see growing discrimination between the major developed markets and the booming emerging markets, and it expects this to materialise across different assets, with flows continuing towards the region.
"However, we are conscious of rising inflationary pressures in the emerging markets, and believe this may be the next area of concern." But even in the Western world, the bank believes that inflation may have troughed.
"Although valid concerns remain about the global economy and prospects for economic growth, we believe that current market valuations remain overly cautious, and that it is time to reposition investments for the new reality."
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