Are Markets Becoming Too Complacent?

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As investors push equities and other risk assets to multi-year highs, one question being raised by analysts is whether upbeat markets are becoming too complacent.

Lim Say Boon, chief investment officer at DBS Private Bank in Singapore, says while markets are probably not pricing in long-term structural problems such as huge debt levels in many major economies, the sharp and swift move into stocks this year do not reflect complacency.

Instead, the rally in risk assets shows investors are finally taking a step back from high levels of fear and anxiety that ruled last year. In the past three months, shares in the U.S. and Asia have rallied more than 6 percent, while stocks in Europe have gained 4 percent, as fears about U.S. fiscal worries subside and economic data paint a brighter outlook for global growth.

It's a sharp contrast to the middle of last year, when a surge in Spanish government bonds yields and worries about a break-up of the euro zone triggered a sharp fall in the euro and equity markets globally.

"It (taking on risk) depends on whether you take a five-year view or a 12-month view and right now, what clients want to know is where are they going to make the most money over the next 12 months," Say Boon said, answering a question about whether markets are becoming complacent on CNBC Asia's "Squawk Box."

"Fear is coming off the table and markets are becoming tired of being frightened. As equities risk premium declines, stocks are likely to be the best performing asset class of 2013," he added, saying he is overweight on equities and commodities and neutral on bonds.

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Although economic growth in much of the world is still tepid, especially in theeuro zone where unemployment is at a record high of 11.8 percent, the shift in market sentiment marks the start of a turnaround from high levels of fear last year, analysts said.

"It's not a matter of not being worried at all, it's about being less worried," said Stanley Szeto, a member of the Young Presidents Organization, which recently reported its quarterly index of confidence among small-to- medium sized firms in Asia rose to 64.3 in January from 60 in October.

"The problems with the euro zone do seem to have subsided…In China, there was talk of a sharp slowdown, but things have stabilized," he said.

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According to Say Boon, Intrade, a forum that allows speculators to bet on subjects from entertainment to elections, puts the chances of a break-up of the euro zone at about 16 percent compared with 60 percent last year.

"Last week, we bought dollars against the euro because we thought the markets had become too complacent about the risks in the euro zone. And we have some risks coming up in Spain and Italy," Philippe Uzan, chief investment officer at Edmond de Rothschild Asset Management, told CNBC, referring to a corruption scandal in Spain and elections later this month in Italy. "(But) I don't think the situation will worsen like it did last year."

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Uzan added: "The main difference between last year and this year is that last year you could only have a decent return by playing with bonds. This year, it is about equities. And I don't think it will be a tremendous year, but you do need to be in equities."

- By CNBC's Dhara Ranasinghe; Follow her on Twitter: @DharaCNBC