Reflecting on last weekend’s gathering of policymakers, business leaders and pundits at the World Economic Forum event in Davos, Switzerland, the firm’s Chief Investment Office said it was heartened by signs of a “cyclical upswing” led by Asia and the US.

The firm cited a recent strong reading by the HSBC measure of Chinese manufacturing, underpinned by robust domestic new orders and a rise in employment. Meanwhile, in the US, initial jobless claims fell, indicating an improvement in the state of the market.

The recent shift in policy by the Bank of Japan, in the wake of the election of a new government in December, has seen the BoJ adopt a 2 per cent inflation target; the yen has weakened amid expectations of reflationary policy. (The BoJ has embarked on a policy of buying Y10 trillion of government T-bill securities and a further Y2 trillion of Japanese government bonds, in a policy starting in 2014.)

Merrill Lynch WM predicts that the yen will depreciate in the medium term although there may be some rises closer in time. The Japanese policy has been controversial, provoking criticisms from Germany, for example. However, Merrill Lynch WM said it is unlikely to have a “currency war” in the short run.

In terms of overall asset weightings, UK equities are weighted “neutral” or equal weight, while US equities are also neutral, as are emerging market equities. The firm is overweight European equities, and negative on Japanese equities and underweight government bonds. It is positive on credits (corporate debt), equal weight on commodities (but positive on gold) and equal weight on direct property investments.