Asset Allocation: Market Analysis - Europe - Seeking excitement while being cautious.

Byline: Adrian Fowler

The European economy is likely to show continued strength this year, although at more moderate levels than in 2006, supported by economic growth in China and other emerging markets.

European equity markets rallied sharply at the end of last year though this has been accompanied by a mild deterioration in valuations. Investors may well look to adopt a more cautious positioning given the very strong performance of equity markets over the past three years, the expected interest rate increases and the likely increase in global bond yields.