Our recommendation for an unconstrained, dollar-based MSCI equity portfolio is shown in the table below.

Though we recognise that the US market is overvalued on any basis, from such traditional measures as PE or dividend yield to the Tobin Q ratio, we don't think that the US bull phase is quite over. US economic fundamentals remain solid.

Even if there is a further correction, the US market is expected to perform better and to recover more quickly.

In Europe we are neutral. With the exception of the UK, European valuations look fairly rich and the economic environment more problematic, given the likelihood of convergence-driven upward pressures upon German interest rates.

Japan has been hit yet again not just by signs of slumping domestic consumption but also by the Asian financial crises. Apart from the exposure of the Japanese banks, Japanese exports will be hit by slower Asian growth next year. We are underweight Japan.

In Asia ex-Japan a great deal of damage has been done. Clear signs of local resistance to the necessary banking reforms, for example, remain. We are confident about the long-term potential but underweight for now.

In a global bond portfolio measured against the Salomon World Government Bond Index, we would be overweight dollar bonds, very underweight Japanese bonds and slightly underweight European bonds generally, though positive about gilts.

Despite recent weakness we expect the dollar to be firm, though more against the yen than the Deutschmark. Sterling is likely to be volatile until UK interest rate trends are more clear, now that the hopes of early EMU entry have been removed.

In terms of balanced accounts, we still favour equities. Given a 50:50 benchmark, we would be at 60:40.

To summarise, we have tried to distinguish between regions and markets where economic fundamentals have changed and those where all the excitement - at least so far - has been financial.

Tony Thomson is chief executive of Nikko Capital Management (UK)