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By Sean Kelleher, Special to Gulf NewsPublished: June 27, 2009, 22:43 Dubai: Bullish Barings and that is the important news.

When one of the biggest brands in financial services says it is "overweight equities" and positive on the future, investors should take note.

Formed in 1760, and therefore older than the UAE and the USA, Barings is a brand with a nice mix of history and intrigue; remember Nick Leeson? Well, watch the film.

Post-Leeson, the Barings Asset Management Division, was the jewel in the Barings' crown and carries a reputation suggesting that they don't give opinions without thinking it through.

The thoughts of Mario Valensise, Chief Investment Officer at Barings, are therefore considered.

I asked Valensise for a global view on the world economy.

A question based on a sense that other market experts are largely fence-sitting while acknowledging the partial equity recovery, and (from a historical perspective) the continued "cheapness" of prices.

Barings though, according to Valensise has been "overweight equities" since December 2008, and while he sees the market stabilising in the coming weeks he is not selling because "we know we can't time our re-entry".

Two important basics inform this comment.

Firstly, Valensise's bullishness is medium term and not suited to short-term traders.

Secondly, if the CIO at Barings is not trying to "time the market" few at home should be relying on it.

As the adage says, "It's time in the market, and not timing the market that counts."The substance of Valensise's thinking comes from Barings four building blocks to decision making.

In essence these amount to, firstly, a comparison between equities, bonds and cash; secondly, geographic nuances; thirdly, sector differences, and finally, bonds and currency.

Dissecting these blocks takes us into the heart of his thinking.The call on being "overweight equities" is based partly on industrial production figures, where the "level of inventories is very low, but in the second part of the year we will see companies re-stock." Partly also on the Barings view on the connection between the banking crisis, its cure and the probable round of inflation that will set off an asset price inflation.Valensise's thinking is based on M x V = inflation.

Where M is the money supply and where M is clearly being funded.

Unlike the Great Depression, government policy has witnessed large amounts of money being pumped into the economy.

The V stands for velocity.

If you lend me Dh100, the transactional value might be seen as Dh200 (a debit, mine of 100, and a credit, yours of 100).

If the bank does its intermediation bit, you deposit the money, I borrow it and the same transaction total is now Dh400.

If banks lend money the V bit will rise.

A larger M and a larger V equals faster inflation and that will spill over into asset price inflation.

The problem is that not all the banks are doing what they are supposed to be doing.

So the geographic block has some bearing on Valensise's geographic choices.

The UK and USA, are, to Valensise, not playing the game.

They have the ability to lend but are not lending to the scale that they could.

This is reflected in Valensise's actual stock choices where he is very underweight banks.

Although countries like China are taking effective action, "the reason why China is important, is Chinese authorities have convinced the banks to continue to lend".

It would be nice if they could persuade others.When it comes to sectors, Valensise's preference is "overweight consumer staples" and underweight "consumer discretionary" spending.

Especially, as I have said, the banks.

An important aside here is, if Valensise's preference is against "consumer discretionary" spending it's not as if he is advocating a sudden V-shape equity recovery.

The bumps have to be expected, and in such times the "consumer staples" are much more likely to thrive.Valensise is also a currency expert and two tips stand out.

Firstly, the gloom on the US dollar, where the government continues to print greenbacks - "if there is more of them then the value of a single dollar will go down.

Secondly, for the Brits out there, "sterling is likely to appreciate".Back to the main message: Barings is bullish on equities, based on the assumption that inflation will set off an asset price rise.

"The amount of money being pumped in is enormous; inflation is inevitable.

But we can't control the transmission, the velocity of money," he says.

In short, prices will rise as soon as the banks start lending again, with the main threat coming from the reverse scenario, deflation,"We are wrong if we return to a January/February situation, oil corrections, bonds going up, and a general deflationary curve", says Valensise, who is not banking on being wrong!�- The writer is chairman of Financial Partners/Mondial.More from ......

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