Our asset allocation policy starts from a viewpoint that current ec-onomic growth is adequate to sustain modest profits growth, but not so high as to threaten a resurgence of inflation. This benign Goldilocks" environment (not too hot, not too cold) means that we believe equity markets are generally offering fair value at present.

Turning to specific markets, we are overweight in UK equities. After the recent sharp rise and ahead of the budget we would expect some consolidation, but beyond 2 July the UK stock market still looks attractive. We be-lieve that many investors are making the same overly pessimistic assumptions about the UK as they wrongly made about the US 18 months ago.

We are also overweight in emerging markets. At present we favour Latin America, where we have pared our Brazilian holdings in favour of Mexico and the smaller markets. Although Asia remains weak, there are signs that at long last it is close to bottoming.

The third equity area in which we are overweight is Europe. Again we see some further short-term consolidation as investors absorb EMU's rapidly changing fortunes. Nevertheless, the lesson being given by European electorates should encourage their governments to maintain low interest rates and allow economic recovery to gather momentum.

Our stance towards the US is neutral, as it has been since the start of the year. After a 15% rise since January, we believe the US is overbought. However, the market's liquidity may mean that there is no more than a brief hiatus before the Dow resumes its relentless progress towards 8,000. Viewed long term we think that the economic environment in the US will continue to benefit the equity market.

While we are also neutral on Pacific markets overall, this hides a split between the various constituents of that sector. Hong Kong and Australia are our favoured markets, both of which we expect to gain from the favourable global inflation outlook. In Thailand we have started to build exposure in selected stocks.

Generally good corporate earnings have helped drive the Japanese market up during the first half of 1997. We consider that the market has now reached the top of its trading range and that it will not progress further until there is a return of confidence among local investors. In the near term we do not anticipate this happening, so we are underweight Japan.

We are neutral in common currency terms for all bond markets except Japan, where yields still look too low on any fundamental valuation basis. However, global bonds seem range-bound at present (the US is a good example) and we prefer to be underweight in bonds relative to equities.

Which brings us to UK property, something of a Cinderella in recent years for pension funds. With rental yields above gilts and growing investment and occupier interest, however, we expect the recent upturn in performance to continue. Peter Baxter is head of global asset allocation at Hill Samuel AM"