Wanted: catalysts for buying

By Jeremy Gaunt, European Investment Correspondent

LONDON (Reuters) - Many financial assets across the world are looking cheap after the market ructions of the past year but investors in general have yet to rediscover the impulse to buy.

The mood appears to be so negative that even the odd bit of good news is quickly shrugged off by market players.

Consider, for example, last week's decision by Saudi Prince Alwaleed bin Talal to increase his stake in battered Citigroup (C.N) because the bank's shares were "dramatically undervalued."

A statement of confidence from a major investor? Definitely. Yet shares in Citigroup closed down 26 percent on that day.

With global stocks as measured by the MSCI index having halved in price over the past 12 months, many investors are looking for a catalyst to bring them back into the market.

This is proving highly elusive, given the drumbeat of bad economic news and the still wobbly financial system.

Around 250 economists across Group of Seven nations told Reuters in a poll last week that they expected major economies to be in recession for as long as five quarters.

The Federal Reserve said the U.S. economy would contract until at least mid-2009.

And the number of major layoffs announced across the world since September has now risen to at least 261,000 jobs -- hardly conducive to a quick turnaround in consumer confidence.

The Organization for Economic Co-operation and Development will give its latest view of the state of the world economy on Tuesday.

What many investors may need before they re-engage with riskier markets again is to see the trough of the investment cycle.

The problem is, that is not always known until well after it has been reached. Indeed, the bottom may already be here.

"We are in the process of bottoming, but it is a process not a single event," said Michael O'Sullivan, director of global asset allocation at Credit Suisse's private bank. "We are likely to do that for the next month or so."

O'Sullivan reckons investors will want to see a lot of things take place before a new investment cycle kicks off, including continued improvements in credit markets, a pickup in consumer confidence, an end to the U.S. housing slide and the VIX index .VIX below 50.

The latter, sometimes called the fear gauge, can be seen as a measurement of expected stock market volatility. It is currently trading around 80.