Systemic risk has receded: time to increase beta.

Start to bottom-fish in investment grade corporates.

Deterioration in central scenario warrants protective measures.

Equities still have relative valuation appeal but volatility is on the rise.

Strong supply-demand dynamics warrant a larger exposure to commodities.

At the end of last February, a sharp price correction sent a short-lived tremor through the stock markets. At the time, the cause of the feverish, if fleeting, reaction of certain investors was the fall in US house prices and the growing difficulty of subprime debtors to make their payments. At the same time, the Chinese stock market abruptly plummeted, sparking fears that this was the end of the stock market cycle for China.

Equities remain our preferred asset class - albeit with greater selectivity.

The U.S. housing crisis is worsening, rocking the financial markets. The extent to which it has spread to other assets is giving cause for concern.