Equity markets still present attractive value going forward despite the first half of 2011 seeing revolts in Northern African countries, a devastating earthquake and tsunami in Japan and sovereign debt worries in peripheral Europe.

"Sector correlations have come down indeed, and investors' infatuation with growth stocks has lost some vigour," Dexia Asset Management's global head of fundamental equity management Fredric Buzar said.

"The trade-off is now between cyclical and defensive stocks," he noted.

"Our prudence towards emerging markets has also been justified, as these markets have been under pressure as a result of interest rate rises, higher inflation and the end of the second quarter."

"It is not impossible that we are seeing a replay of 2008, - a cocktail of higher inflation, an economic slowdown and rising commodity prices," he said.

"But so far the central case remains that we find ourselves in the midst of a mid-cycle slowdown, which results in temporarily slower growth, without a break of the longer-term uptrend," Buzar added.

"Therefore, equities remain very attractive going forward. Real risk-free yields are negative, corporate profitability is very high, balance sheets are flush with cash and risk premiums have risen again of late.

"We believe that the return on equities will come primarily from a contraction of elevated risk premium," he said.

"Trading at 10 to 11 times forward earnings, European equity have already discounted a form of soft patch. In a certain sense, it is hard to find compelling alternatives to equity investments right now," he added.-TradeArabia News Service