Aberdeen says search for yield in 2010

By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - Aberdeen Asset Managers is concerned about what it views is the fragility of the economic recovery, prompting caution heading into next year, with bonds and property the focus rather than continued sharp equity gains.

In a briefing on Wednesday, the 129.2 billion pound asset manager said investors would be looking less at capital gain next year than they have been recently.

"What we are thinking about in 2010 is a search for yield," said Mike Turner, head of global strategy and asset allocation.

The foundation of Aberdeen's view is the global economy will remain on shaky legs, with little inflationary pressure. As a result, official rates will rise a bit next year but remain very low, keeping liquidity in the market

That will mean bonds should continue to outperform cash.

The firm said, for example, current market expectations for short rates in 12 months time are only 0.5 percent for the United States, 0.65 percent for Britain and 0.75 for the euro zone.

"Bond yields are relatively high in relation to cash... (They) should be well anchored next year," said Jon Cunliffe, Aberdeen's head of interest rates.

The firm also reckons corporate bonds remain attractive with investment grade spreads still significantly wider than they were during the dot com bubble, and high-yield debt still offer high premia.