Barefoot Investor: GLOBAL MARKETS WEEKAHEAD-Lacking conviction

Investors are unlikely to gain strong conviction on asset allocation any time soon as risks from the escalating euro zone debt crisis and risks surrounding China offset more positive signals from the corporate earnings season.

World stocks, measured by MSCI , briefly hit a five-week high on Friday, July 8, extending their recovery from a June sell-off prompted by concerns about the euro zone debt crisis and weakening economic momentum.

Investors remain nervous about the impact of a potential default in Greek sovereign debt and contagion to other weak peripheral countries in a saga that is unlikely to end any time soon.

A smaller-than-expected rise in U.S. non-farm payrolls in June was also a drag, but other recent data showed the economy is coming out of a soft patch in a global economy still expected to grow at a healthy 4 percent this year.

Investors are also uncertain whether China's latest interest rate hike leaves Beijing near the end of a nine-month long policy tightening cycle as its economy eases gently but inflation stays elevated at 34-month highs.

This tug-of-war prevents any single asset class from strongly outperforming others and investors are forced to keep neutral allocation for now.

"Investor concerns are primarily about the soft patch and the European crisis. The insolvency situation is required for the euro zone, which is very difficult to achieve when you have so many policymakers involved," said Carl Astorri, global head of economics and asset strategy at British private bank Coutts.

"We seem to be stuck in a world where people are not having strong conviction. People don't seem to have a staying power to hold positions. But you're getting nothing on cash. Ultimately we think people will get rewarded for taking risks."

Coutts is overweight on equities, especially in emerging markets, and has a strong underweight position on government bonds.

International bankers and European Union officials are in a deadlock over how private creditors might voluntarily maintain their exposure to Greek sovereign debt. Euro zone finance ministers will meet in Brussels next week. (


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