ASSET ALLOCATION: Liquidity and risk aversion is back to pre-crisis levels

Following the strong performance demonstrated by most main risk assets during 2009, the start of 2010 saw volatility return to the markets.

January saw most major equity markets give up some of the gains made in 2009 before staging a recovery in February. The macroeconomic backdrop remains a concern, especially in the UK where data showed the economy creeping out of recession in the final quarter of 2009.While growth in other regions is more robust, the level of debt remains a concern. The recovery we have seen in the corporate bonds market has in part been driven by the market returning to more ‘normal’ conditions, with both liquidity and risk aversion returning to levels not seen since before the crisis. The spectacu...