Yield hunters emerge from hibernation

Blinking in the light and still very nervous, investors have taken tentative steps back into the world’s equity markets in 2012, but it won’t take much to scare them and they will be looking for encouragement from policy makers in the coming week.

Euro zone finance ministers meet on Monday amid demands for faster action on fiscal integration, while the US Federal Reserve’s key policy making committee, the FOMC, holds its first meeting since promising to give a forecast on interest rates.

But neither event should upset what has been a very good start for riskier assets like equities and commodities in 2012 as investors start to leave safe-havens like the dollar and German government bonds and put their money to work.

Patrick Zweifel of Pictet Asset Management summed up the current mood as “a moderate risk on position.”

Zweifel said this was driven by a view on the business cycle as economic data in major markets like the US and China surprise on the upside, the abundant liquidity provided by central banks, good valuations for many assets after last year’s sharp falls and a general improvement in sentiment.

The positive tone has shown up clearly in developed market equities but emerging markets have also seen a comeback after a disappointing 2011.