While it may be too soon to say that the worst of the bear market is over, there is case for investors to start adding a little more risk to their portfolios, according to Gary Dugan, chief investment officer EMEA at Merrill Lynch Global Wealth Management, who argues that emerging markets are now looking interesting.

Merrill Lynch is hopeful that a big turnaround is coming, but Mr Dugan cautions that a number of factors need to be resolved before it can be sure that the financial markets have turned a corner.

In the US the housing market must bottom out, and the pace of job losses needs to slow down, while on a global scale, major economies such as Japan and Germany need to stabilise before confidence can return, Mr Dugan believes.

That said, he points out that by the time the perfect set of good news comes the markets will have already moved higher, so Merrill is advising clients to add risk now.

In terms of asset classes that might lead forthcoming market rallies, Merrill suggests that investors look to commodities and emerging markets – in fact, the firm is more convinced of a rapid rebound in emerging markets than in the developed economies.

“Our preference is for the BRIC (Brazil, Russia, India, and China) markets. Even Russia now looks interesting given its very low valuation, the more robust performance of the oil price in recent weeks, the low level of debt in the economy and the recent stabilisation of the rouble,” said Mr Dugan.

Mr Dugan predicts that commodities should benefit from any improvement in the global economy – even if simply from the absence of downgrades to global GDP figures. “Many commodities are seeing increasing support from restrained supply and the likely end of the recent phase of de-stocking,” he adds.