Percival Stanion, chairman of BAM’s strategic policy group, said that while a large revaluation was not expected, the way it was being handled could upset the market.
 BAM also believes that good cash flows and dividend yields make UK equities are a good bet, despite the possibility of interest rates rising if the housing market bounces back in the Spring.
 More surprisingly, the firm is wary of global small caps in the wake of their remarkable two-year rally. BAM says the run is only being sustained by heavy M&A activity funded by cheap bond financing which could come to a halt.
 BAM also advises investors to lighten their fixed income portfolios on account of what it sees as “confusing signals” in the bond market.
 Mr Stanion said: “Rising short term interest rates and falling long-term rates don’t help investors understand where we are in the cycle. Long-term rates usually fall when the market anticipates a recession. We think there is a long-term structural trend happening in Europe and in the US where organisations, such as pension funds, are being forced to buy long duration bonds at virtually any price to match their liabilities.
 “This has helped drive down very long-term bond yields in a period when the world economy is still in the middle of the cycle and cyclical pressures would normally be driving bond yields higher. This is confusing many investors about which sectors of the equity market to back.” HS

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