Julius Baer Holdings, Switzerland's leading independent wealth manager, has turned more cautious on equities amid the persistent high volatility in markets worldwide and the lingering uncertainty over global economic growth.

Earlier this month, Julius Baer trimmed its recommended net long equities position to 29%, reflecting a long position of 36% and a short position of 7%. ThatÆs a significantly more conservative stance compared with a recommended net long position of 35% in May, resulting from a long position of 42% and a short position of 7%. Those figures are from Julius BaerÆs suggested asset allocation model, which was set up in July 2006.

ôThis is going to be a difficult equities environment,ö says Venkatraman Anantha-Nageswaran, Singapore-based CIO for Asia-Pacific at Bank Julius Baer & Company, a unit of Julius Baer Holdings.

In Julius BaerÆs latest global asset allocation model, it suggests holding 17% in cash, sharply higher than last monthÆs recommendation of 7%. It suggests holding 27% in equities (compared with 31% last month), 20% in emerging market bonds (down from the previous 22%), and 17% in commodities (down from the previous 22%).

Specifically, Julius Baer suggests reducing equity holdings in Asia ex-Japan, Brazil and Russia and putting some money in Japan and holding investments in Korea steady. It also suggests holding some alternative assets now compared with none last month.

Anantha-Nageswaran says the recent changes in allocation recommendations have been significantly more drastic than in the past, when sometimes three months would go by with no changes at all. This reflects the high level of volatility and uncertainty in the market, he says.

There are other equities markets, such as Vietnam, where although Julius BaerÆs conviction has weakened, it would be too late to pull back at this point due to the nearly 21% decline in that marketÆs benchmark index in the month of May alone.

One way investors could take advantage of the current market environment û one thatÆs characterised by overwhelming concerns over high oil prices and rising inflation û is by latching on to investment themes that would benefit under the current scenario, says Anantha-Nageswaran.

For example, Julius Baer suggests high exposure to food and agricultural commodities, which the firm sees as long-term trends. The firm has a relatively small suggested allocation to crude oil-related plays, however, because there may eventually be a collapse in the demand for oil.

Meanwhile, Anantha-Nageswaran notes that the debate about whether Asia will decouple from the US and prove to be more resilient is over. The more important question now is whether Asia will decouple significantly from the US for the worst.

Crucial to AsiaÆs ôsalvationö is the policy response of central banks to the challenge of finding a balance between slowing growth and rising inflation, he says. As of now, Asian central banks û such as those in Indonesia, Malaysia, the Philippines and Thailand, to name a few û have been behind the curve in terms of monetary tightening because there has been a mentality of ôkeeping growth up at all costsö.

The ôobsession with growth and the need to continue to keep growth upö is encouraging central banks in Asia to maintain fairly loose monetary policies, says Anantha-Nageswaran. And the reluctance to raise interest rates more aggressively has actually been fuelling growth which in turn has been keeping oil prices and inflation high.

ôHigh oil prices are not actually causing inflation to rise,ö says Anantha-Nageswaran. ôOil prices are nothing but a reflection of inflation.ö

But itÆs not too late to respond appropriately and allow interest rates to rise at a faster pace, says Anantha-Nageswaran.

ôThere has been talk of Asia turning to domestic growth but there has not really been a reorientation of priorities because policies are still very much in support of export-led growth,ö he says.