There is no safe havenGlobal economic and financial upheaval has left investors with no place

to hide. the euro crisis, the u.s presidential election and doubts about the destiny of the Global economy have made it all but impossible for the

cautious investor to take cover.

As 2011 comes to an end, closing a year characterized by violent market swings in virtually all asset classes,

investors can have few certainties or clear expectations about what lies ahead.

a european union leaders summit, billed as a last chance to save the euro currency, ended on dec. 9 with a deal for stricter fiscal discipline, possibly helping to keep at bay long-term bond yields for european governments and avoiding a credit crunch

for the private sector. but the agreement left financial markets still wondering if the euro zone’s debt crisis can be quelled and whether the global economy is on track for solid growth.

more clouds are on the horizon: a divisive u.s. election year probably means no new measures to control the u.s. budget deficit, and expected softer demand in developed countries will probably slow growth among the brics emerging economies,

including china.asset managers and leading investors

in new york, london and singapore who attended the reuters 2012 Global investment outlook summit on dec. 5-8 agreed on one thing: there is no such a thing as safe haven these days. not even cash can protect wealth from potential losses, they said. see what else they had to say, including strategies on what to buy and sell.

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Traders work on the new York Stock

Exchange floor on Sept. 28, 2011.

invESTMEnT SUMMiT 2

BY daniEl BaSES and Jilian MincER new york, dec 6

Money manaGers are bracing for more market volatility and political uncertainty as they weigh their

investment choices in 2012, reiterating a warning that simply holding cash won’t completely insulate investors from losses.

the uncertainty stems from europe’s unresolved debt crisis, which faces a big test later this week in brussels when european union leaders meet to hash out an agreement on budget discipline, as well as major elections in nearly half of the Group of 20 nations in 2012.

speaking at the thomson reuters’ lipper investment series 2012 outlook panel discussion on tuesday, the experts all anticipated weak economic growth in 2012.

“we’ll continue to have two steps forward, one step back. people (are) looking at the severity of the teeth of any policy statement that comes out and viewing it very skeptically. what that means is markets will be volatile,” said christine thompson, chief investment officer of fidelity investments bond group.

the fear factor has driven cash into u.s. treasuries and pushed yields to historic lows, whereby the current rate of u.s. inflation, 3.5 percent, guarantees a negative return on the debt when compared to a 2.09 percent yield on benchmark 10-year u.s. government debt.

“that is something you have to factor in, but it will be a return of your money if not a return on your money,” she said.

while this week’s hot button issue is how to ensure italy doesn’t implode, the panel said the united states also needs to address its budget deficit, with some highlighting spending cuts alone would not resolve the problem.

in august standard & poor’s cut its aaa rating on the united states in an unprecedented move, citing the political gridlock in washington as a significant factor.

last month, moody’s investors service warned the u.s. government not to skimp on deficit cuts after a special u.s. congressional committee failed to reach an agreement on deficit reduction.

the rating agency maintained its aaa rating but any pullback from agreed automatic cuts to take effect starting in 2013 could prompt it to take action.

Unsettled markets to defineinvestment climate in 2012

an Occupy london Stock Exchange protester demonstrates

outside the U.S. Embassy in london nov. 15, 2011.

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invESTMEnT SUMMiT 3

“... what has been significantly absent is the political will to get it done,” said lisa shalett, chief investment officer at merrill lynch wealth management.

on monday, s&p issued a similar warning to the euro zone nations, saying they too face a credit downgrade if they do not come up with a solution to meet their credit obligations.

however, a break-up of the euro zone and its currency was not expected.

“it easy to talk about the break-up of the euro, but when you talk about damage to the banking system and economies, i think it is just so horrendous that they’ll do anything

to stop that,” said robert auwaerter, head of the fixed income group at vanguard.

the near constant roiling of markets this year, be it stocks, currencies or credit has resulted in a massive flight from riskier assets to safer trades such as u.s. treasuries, pushing those yields toward zero.

as a consequence, one of the few sectors where cash is flowing is into dividend paying stocks as a replacement for earnings lost out to low yielding debt.

according to lipper’s u.s. fund flows database, which tracks the movement of cash in over 21,000 funds, year-to-date the assets under management in the equity

income category are up 26 percent to over $104 billion.

the question is whether that strategy is overdone?

“probably for the first time in 5-1/2 years we are actually underweight higher dividend stocks because we think there is a little bit of a bubble in utilities, and telecoms, mid-cap consumer staples, where the market is putting much too high of a value in that dividend,” said david Giroux, co-manager of t. rowe price’s large-cap value strategy.

while dividend paying stocks might be richly priced, the lack of investment choices continues to drive cash into high yield bonds and emerging markets, albeit more selectively.

municipal bonds are also an attractive area said fidelity’s thompson and vanguard’s auwaerter, despite the bankruptcy declared by Jefferson county, alabama and harrisburg, pennsylvania’s attempt, since rejected by a federal judge last month.

don’t count european assets out just yet, said colin moore, chief investment officer of columbia management investment advisors.

“if i was being speculative about 2012, i actually might buy european equities, there’s a lot european corporate earnings which are doing quite good, which also affects their bonds. the risk premium is clearly extremely high and any mild solution there triggers off a big revaluation of the market,” he said.

(additional reporting by richard leong; editing by kim coghill)

REUTERS inSidER

Bank of Italy’s Fabrizio Saccomanni discusses Standard & Poor’s latest warning on euro nation’s debt ratings and European banks’ liquidity: http://r.reuters.com/wuf55s

Source: Thomson Reuters Datastream

Asset performance in 2011test

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euro zone crisisClick here for multimedia coverage of the euro zone crisis page on Top News:http://link.reuters.com/jyr68r

2012 investment climate......................2-3end of high correlation era ....................4what to buy and sell ..............................5funds’ bets .............................................6s&p warning on euro debt .................... 7standard life’s view ...............................8u.s. and the euro Zone contagion .........9tad rivelle on Qe3 ................................ 10cutting down on counterparties ........... 11bny mellon cio on s&p 500.................12investor fisher on stocks .......................12mirae asset on china .............................13Goldman’s o’neill on india ....................14hedge fund managers ..........................15income disparity ....................................16reuters asset allocation poll ................ 17

contents

invESTMEnT SUMMiT 4

BY HERBERT laSH new york, dec 8

A hiGh correlation between assets classes has been the hallmark of financial markets this year, with

assets moving in seemingly perfect lock-step, but that panorama may be on the verge of breaking down, investors at the 2012 reuters investment outlook summit said this week.

an unusually high level of uncertainty about the global economy spawned by the 2008 financial crisis has driven a “risk on, risk off” investment strategy across financial markets.

u.s. and european fiscal woes have spurred the uncertainty, as has political unrest in north africa and the middle east, as well as the earthquake and tsunami that slammed Japan earlier this year. when the uncertainty subsides is unknown.

but security selection and a “bottoms up” view of the investing landscape will return to the marketplace, and investors would be wise to make note, analysts at the summit said.

“we would say that the extremely high, pair-wise correlation that we’ve seen in equities over the last several years is poised to drop,” art steinmetz, chief investment officer at oppenheimerfunds in new york, told the summit.

“and therefore stock pickers will start to be able to prove their mettle once again,” steinmetz said.

the correlation of large-cap u.s. stocks has been about 85 percent in recent months -- measured by the percentage of large-cap stocks that rise or fall in sync with the s&p 500 -- while the correlation among other asset classes also has been high.

the monthly change of eight asset classes in relation to the benchmark standard & poor’s 500 index has climbed to trading in sync almost half the time from almost never during most of the 1990s, according to ned davis research.

the eight asset classes include msci indexes for international and emerging market stocks, spot gold, copper futures, three-month and 10-year u.s. treasury debt, the euro and the reuters-Jefferies crb commodities index.

for investors, a key insight will be knowing “when that correction finally breaks, and it will break at some point,” said Jane buchan,

chief executive of pacific alternative asset management co llc of irvine, california.

the high correlation will not break across the board, but a fair amount of dispersion in the price of similar stocks will likely be seen in technology and healthcare stocks, she said.

“one of the interesting exercises to do is to think about in what industries are you likely to see greater dispersion and you’ll probably want to put your long-short equity book in those industries,” buchan told the summit.

the importance of betting on big themes, such as the rise in gold prices or the fallout from a highly indebted developed world, is likely to ebb as correlations fall, she said.

a lack of dispersion has foiled investors’ returns.

ultra-low global interest rates, the federal reserve’s program of buying government bonds to increase money supply, and active central bank intervention in the Japanese yen and swiss franc have been behind the historically low dispersion, according to fX concepts llc, one of the world’s largest

currency hedge funds. the world’s major commerce currencies

have typically traded in a range of about 20 percent, providing wide enough price swings to make money, said John taylor, chairman and chief executive of fX concepts.

but this year the range for the currencies of the Group of 10 nations narrowed to 6 percent, the lowest since 2004, from a more typical spread between high and low of about 20 percent.

the narrow band has wreaked havoc on the returns of fX concepts’ global currency strategy, causing the fund to lose 17.8 percent through october of this year.

Getting a strategy correct isn’t easy. taylor, who called his returns this year “awful,” said his firm might make five or six mistakes for every three or four things it does right.

“our job is to ferret the places where you can make a bunch of money, and when there’s no bunches to be made you go crazy trying to find them,” said taylor.

(editing by Jennifer ablan and leslie adler)

High correlation is poised to end; new era to begin

Source: Thomson Reuters Datastream

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invESTMEnT SUMMiT 5

BY kaTYa WacHTEl and SaM FORGiOnEnew york, dec 8

Money manaGers in the united states are finding ample investment strategies leading into the new

year, from opportunistic buying of high-yield “junk” bonds and muni debt to selling short china stocks. Guests at the 2012 reuters investment outlook summit this week warned that while the worry list continues to grow, from the european debt crisis to fragile u.s. economic activity, that could produce interesting entry points for various asset classes. some investors have even argued that world markets are in a “sweet spot” for investing into the new year.

here are some recommendations from the bullish and the bearish.

James chanos, founder and president, Kynikos Associates Sell: China and its suppliers

“it is already happening. ... transaction volumes have plummeted. this is what we saw in places like las vegas and florida

before the crash, transactions just stopped.” in addition to shorting the shares of mining and construction companies that ship raw materials to china and are involved in its real estate boom, the hedge fund manager

is also bearish on china’s banking system. chanos argues state lenders have made and continue to make billions in risky loans without sufficient capital. kynikos is shorting shares in agricultural bank of china.

Art steinmetz, chief investment officer, oppenheimerFunds Buy: High-yield credit

“we are in the sweet spot for higher-yielding credit,” said steinmetz, who said corporate bonds, junk bonds and municipal debt offer steady profits. he thinks spreads could tighten to June levels - a difference of 200 basis points from now - and forecasts returns of 15-20 percent for u.s. credit as yields are roughly 9 percent. “in credit, you’re getting paid for bad outcomes already,” he said, calling it “a bird in the hand.”

Ken Fisher, founder and chief executive officer, Fisher investments Buy: U.S. equities

“everything looks good. i believe 2012 will be a much nicer year. the economy globally is much stronger than people think. the u.s market is well-positioned.” fisher is skeptical the united

states will enter a recession and expects 2012 will start with a “bounce back” from 2011 fears. fisher says he is overweight “everything economically sensitive.”

Tom sowanick, founder and chief investment officer, omniVest Sell: U.S Treasuries

“i don’t want to own the public sector. corporate earnings are strong and they’re not being priced into the marketplace. ... i’m in bill Gross’s camp. i would not want to own treasuries.” sowanick predicts the s&p 500 index will rally in 2012 because the united states has been successful in segregating its economic activity from that of europe.

David Joy, chief market strategist, Ameriprise Financial Buy: U.S. equities and emerging markets

Joy highlights the boom in consumer spending as a sign of u.s market strength. “the u.s. market is well positioned,” he said, while saying that europe is “by some estimations is already in recession.” bullish as he is on u.s. equities, Joy said he thinks the “best returns next year are going to come from emerging markets,” especially china.

shawn Kravetz, president, esplanade capital Buy: Brand-name U.S retailers

“lowes is a good example of what i think this market is starting to give us. you can buy very high-quality companies - lowes, target, wal-mart – at cheap valuations. these are wonderful, get-rich-slow stocks. the past nine months have been really hard for people, but if you stick to your game plan and let the market come to you,

it’s really a gift in disguise. we are in a sweet spot.” kravetz says the key is to pick cheap brand-name retailers with low expectations for growth, which can provide slow but significant long-term returns for investors.

Boaz Weinstein, founder, saba capital Management Buy: Italian government debt

though weinstein’s fund is not “contrarian by nature,” he diverges from the market’s position and does not see a high risk of default for italy. weinstein bought italian bonds when yields hit 7 percent, saying that he sees “fair value” at a yield of roughly 5-6 percent. he expects the yield on italian sovereign debt to decline over time. “if italy’s not ok, the market is certainly not ok,” he said.

Tad rivelle, chief investment officer of fixed income, TcW Sell: U.S. Treasury bonds

“we’re trying to deemphasize u.s. treasuries,” rivelle said, noting that, given the inflation rate, treasury yields should be higher than the current benchmark 10-year yield of around 2 percent. he said t-bills, which are currently at zero yields, should have an interest rate of “at least 3 percent.” rivelle expects a new round of quantitative easing from the fed if consumer price inflation falls again, which would benefit mortgages and riskier corporate bonds.

John Taylor, chief executive and founder, FX Concepts Sell: Euros

taylor, who a year ago had predicted the euro would fall to parity against the dollar, is now more certain that will happen. european banks have been selling foreign assets, proceeds of which are being repatriated back into the euro zone, cushioning the euro against further declines. “so the euros in the system are not there because they are optimistic but because they are afraid,” taylor said.

(editing by Jennifer ablan and leslie adler)

What to buy, what to sell

invESTMEnT SUMMiT 6

BY MikE dOlan and SUJaTa RaO london, dec 5

europe’s single currency will most likely survive its raging existential crisis intact, asset managers said on monday,

adding that even a roadmap for euro stability should be enough to encourage a rally in world markets next year.

speaking at the reuters 2012 investment outlook summit, taking place in new york, london and hong kong this week, asset managers from some of europe’s biggest financial firms reckoned the risk of a calamitous euro break-up was significant but still not high enough to send investors to ground completely.

“what’s most important is that the market sees a path towards a solution,” said Giordano lombardo, chief investment officer at unicredit’s pioneer investments, which has more than $200 billion in assets under management. “we believe that equity markets have a possible upside of 15-20 percent globally.”

althouGh lombardo said that euro break-up probabilities were still a significant 15-20 percent, there were very few places to hide and little or no “safe havens” without problems or difficulties of their own. wide diversification with some dollar and gold hedges was the only sensible way to position, he said.

above all, asset managers reckoned that the economic and political consequences of a euro collapse would ultimately force governments to find common ground to save the currency union, however long-winded and tortuous that process.

arnaud de servigny, deutsche private wealth management’s head of discretionary portfolio management, said it was not inconceivable that one or more countries might choose to leave the euro in the years ahead, but that would be based on their own reading of the emerging framework.

“i don’t see the break-up of the euro. in 2012 people are going to find the menu of what is needed to be part of the euro zone. they will decide to opt in or opt out based on the menu they’re offered,” he said.

“during the second half of 2012 people might have a bit more visibility. that can give some sort of positive perspective

for equity markets.” alec letchfield, chief investment officer,

wealth at hsbc asset management, also reckoned double digit global equity gains next year were possible as the euro crisis abated.

“we’re not advocates (of the view) that you can simply walk away from this (euro) experiment,” he said. “based on that kind of uncertainty and the potential catastrophe within markets, the logical thing would be for euro politicians to do what is right.”

the first day of the reuters investment outlook summit came as leaders of france and Germany agreed a masterplan for imposing budget discipline across the euro zone, involving changes to european union treaties.

president nicolas sarkozy and chancellor angela merkel said their proposal included automatic penalties for governments which fail to keep their deficits under control, and an early launch of a permanent bailout fund for euro states in distress.

bond and equity markets rallied across europe, helped by a favourable market view of sunday’s austerity package from italian prime minister mario monti, the technocrat premier of the biggest euro zone nation in trouble.

pioneer’s lombardo, who said italian and spanish government debt may be

worth buying at these levels, said monti’s sweeping budget cuts were well balanced. “i’m impressed honestly by what is being done. overall we believe it’s a sustainable manoeuvre.”

fund managers at the reuters summit reckoned the weight of the euro crisis all year had put equity valuations, especially compared with the now deeply negative real yields on u.s., british and German government bonds, in compelling territory.

but most of all they reckoned that a euro break-up was virtually impossible to plan for, or hedge adequately, and there were few obvious havens that would be unaffected.

“if you think of the main safe asset traditionally it’s been sovereign bonds. with this crisis, it’s not very safe. cash depends very much on the stability of the country. cash is not safe like it used to be, “ deutsche’s de servigny said.

“in order to preserve assets you need to be harnessed with entities that exhibit a level of governance that is rather strong and are also harnessed to a level of growth that is sufficient,” he said.

traditional “havens” were either too volatile or capped by government policy.

“the so-called safe asset doesn’t exist anymore,” said lombardo.

(additional reporting by natsuko waki; editing by susan fenton)

Funds bet on euro survival and global rally next year

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A shopkeeper adjusts a clock with the euro symbol outside the EU Council building in Brussels Dec. 8, 2011.

invESTMEnT SUMMiT 7

S&P gets unusual praise for warning on European debtBY ROS kRaSnY and JEnniFER aBlan new york , dec 6

standard & poor’s ratings services is finding itself in a rare position, winning praise for warning it may

downgrade the sovereign debt of 15 european countries.

the move, along with a similar warning by s&p that it could cut the credit rating on the euro zone’s financial bailout fund, served as a call to action on the need to truly tackle the euro zone debt crisis ahead of a summit of european leaders on thursday and friday.

the threat to downgrade ratings on most of the euro zone, including cutting the top-tier ratings of economic powerhouses Germany and france, has put the meeting’s participants on notice.

“this is a call to action.” said leo Grohowski, who helps manage $170 billion as chief investment officer at bny mellon wealth management.

some investors think european leaders have postponed hard decisions, in part because of the complex interplay between economic and political factors.

“authorities have been willing to play the ‘kick the can down the road’ game. at some point, the can started kicking back,” said James chanos, president and founder of the hedge fund kynikos associates, who has been a short seller of european bank stocks.

most hedge fund managers and institutional investors at the reuters 2012 investment outlook summit in london and new york this week believe that, ultimately, europe will “muddle through” its debt crisis.

the stakes are sky-high. s&p warned of slowing economic growth, as a result of austerity measures designed to cut deficits, and predicted a high chance of a euro zone recession. “we now assign a 40 percent probability of a fall in output for the euro zone as a whole,” s&p said on monday.

a credit downgrade could automatically require some investment funds to sell bonds of affected states, causing borrowing costs of those countries to rise further.

s&p’s move “will go into the ‘call for action cuisinart’” Grohowski said.

“it’s been a big week-to-week issue: to see that the policy makers really get the seriousness that the bond market perceives

around their actions,” he said. the plaudits for s&p now stand in sharp

contrast to the criticism lobbed at the three major ratings agencies, including s&p, for their failure to flag rising risks in the u.s. subprime mortgage market. their inaction helped to inflate a global credit bubble that, when it burst, pushed the world economy into recession in 2008.

that episode left many skeptical of the agencies, but may have fostered a new determination to get in front of issues.

for s&p, at least, the new tack was apparent in august, when the agency lowered cut its top-tier credit rating on the united states by a notch for the first time ever.

the downgrade followed months of warnings from s&p. now, investors said, european policy-makers needed to heed s&p’s warning as more than talk.

“after listening intently to the s&p conference, i was left with the sentiment that s&p had thrown down the gauntlet,” mark Grant, managing director at southwest securities, said in a research note.

Grant said a rescue plan from the european central bank without any related political plan would probably not be enough to satisfy

s&p’s ratings team. “the stakes are high, the money on the

table is now large, and the purse has now been established. one way or another, we now all have to place our bets,” he said.

some investors, however, said s&p crossed the line between responsibility to investors and activism.

“i think s&p meant well with the timing,” said stephen Jen, managing partner at hedge fund slJ macro partners llp. “but - just like they did with the u.s. aaa - it now looks as if they are trying to influence the process rather than reflecting it, and i’m not sure that’s what they should be doing.”

John chambers, chairman of s&p’s sovereign ratings committee, said the agency was not inserting itself into europe’s political process. “however, politics is an important element of our analysis,” he told reuters.

“it’s important for us to try to gauge the quality of a nation’s institutions here in the euro area - not only at a national level but at the euro zone level - and to see whether or not policy makers can take proactive steps to put their finances and their economies on sustainable footings.”

(editing by leslie adler)

Students hold a banner outside EU Commission headquarters in Brussels on Dec. 8, 2011.

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BY MikE dOlanlondon, dec 7

standard life investments expects the euro will survive intact in 2012 but it has been stress-testing its portfolios

and planning contingencies for all scenarios, including a euro break-up, its top investment officer said on wednesday.

speaking at reuters 2012 investment outlook summit -- being held this week in new york, london and hong kong -- sli’s head of investments, rod paris, said advice from the uk’s financial services authority (fsa) on contingency planning for a possible euro break-up was well heeded.

paris said the edinburgh-based asset manager, which has 150 billion pounds ($234 billion) of assets under management, had run several possible euro crisis outcomes through its portfolios and examined issues like the geographical location of assets as well as counterparty and liquidity risks.

“we take all of these discrete scenarios and then we stress test our portfolios against it,” paris told reuters. “it’s quite well known that the fsa has asked banks and insurance companies to look at contingency planning.”

“we’re fortunate that we have a natural hedge of having one business in ireland and

one in Germany. that starts to tell you how we’re looking at it,” he said. “the place that assets are geographically positioned starts to become very important in the threat of a break-up.”

paris said the fund had been reducing banking counterparties over the past 12 months anyway.

“we tend to look at national champions, banks that are central of the payment system of that country,” he added. “it’s very easy to be very risk averse and not deal with anyone, but we have a business to run.”

paris said a big theme through 2012 would be falling liquidity in markets as banks have less capital to commit to trading activities. although derivatives markets in general had performed pretty well through the crisis so far, he said there is concern about liquidity in areas like over-the-counter derivatives.

“there are many products that are dependent on derivative overlays that have become more expensive. it may invalidate all sorts of activities,” paris said. “the bid/offer spreads become very wide -- where you once had six market makers giving you a quote, it’s down to two.”

on the other hand, there may be upsides to falling liquidity too. “it might encourage more long-term investment behaviour, because

the costs of coming in and out become too expensive. it may well take some of the froth out of the market.”

paris said markets at large were expecting agreement on a credible roadmap for euro zone reform and stability from friday’s european union summit and would be encouraged going into next year if that emerged.

riGht now, the firm was broadly overweight u.s. equities and underweight europe, with a neutral position on britain. more generally it likes top quality dividend stocks, corporate bonds and the income characteristics of commercial real estate, such as prime london property.

paris said standard life was seeking trading strategies that see through the current high-drama and binary nature of the crisis.

for example, a falling euro against the dollar might be expected in the event of extreme stress and safe-haven demand but may also be the result of a resolution that involves the european central bank printing money via quantitative easing (Qe).

“the dog that hasn’t barked has been a weak euro,” he said.

similarly, German government bonds also may look expensive relative to u.s. treasuries in either scenario -- a resolution involving Qe would undermine bunds’ safe-haven bid and a euro break-up would hit credit quality across the zone.

“you could question whether the very expensive relationship between u.s. treasuries and German bonds is justified.”

paris added that it was also important to consider all possible outcomes longer term, especially those far out of consensus at the moment -- even the debate about britain’s potential membership of the euro.

“what’s interesting to me is just let’s say the (eu) treaty changes are made and we do get a much stronger fiscal regime in europe then i think there are very interesting debates like the uk’s position on the euro from an economic perspective,” he said. “finally, maybe, we then have a euro that is fit for purpose.”

(editing by susan fenton)

Standard Life expects euro to survive, but plans for risk

Occupy Frankfurt movement’s tents stand next to the euro currency sign

sculpture in front of the European central Bank headquarters in

Frankfurt dec. 8, 2011.

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BY ROS kRaSnY new york, dec 5

The united states faces only limited fallout from the euro zone debt crisis and the struggling european economy,

a situation that bodes well for u.s. equity markets in 2012, top u.s. money managers said on monday.

hedge fund managers and institutional investors at the reuters 2012 investment outlook summit in new york said the chances for a recession in the world’s largest economy look very low and europe’s struggles will be no more than a headwind.

“we’ve been able to segregate u.s. economic activity from european economic activity. i don’t know how we’ve done it, but we’ve done it,” said tom sowanick, chief investment officer at omnivest llc in princeton, new Jersey.

signs of recession are proliferating in parts of europe, where leaders from france

and Germany outlined a plan on monday to impose more budget discipline.

but in the united states, leading indicators are strong and on the rise, said kenneth fisher, a billionaire investor and author whose money management firm oversees $40 billion in assets.

“you can’t find a recession recently when the leading economic indicators have been high and rising. and they are now,” said fisher. “the odds of a recession any time soon, like in 2012, are close to zero.”

the leading economic indicator of the conference board, an industry group, rose 0.9 percent in october, extending a 0.1 percent increase in september and a 0.3 percent jump in august. the index is composed of 10 components designed to flag patterns and inflection points in the u.s. economy.

david Joy, chief market strategist with ameriprise financial, said that while europe will likely post anemic growth of just 0.5 percent to 1 percent over the next year, that

will be “another headwind, but not enough to make a difference.

“the bigger fear for us is if there’s a banking crisis, a liquidity crisis in europe,” he said

the likely path of the u.s. economy, meanwhile, with the central tendency for growth over the next few years at about 2.5 percent, is - “not enough to make a big dent in the unemployment rate, but certainly not a double-dip recession.”

fisher gave a very bullish outlook, saying that 2012 “will be a very nice year” for the united states. “the negative arguments are long in the tooth, the positives are not well appreciated, the economy globally is much stronger than people think,” fisher said.

“revenue growth, as a function of the economy, is pretty damn gangbusters,” he said. “i’m more optimistic than most people you’ll find.”

Joy said the united states had made it through the “trauma” of the bitter congressional debt ceiling/default debate in

Top investors expect U.S. toescape euro zone contagion

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invESTMEnT SUMMiT 10

BY EMilY FliTTER new york , dec 6

one of the larGest u.s. bond investors is betting the federal reserve will try to inflate the country

out of is economic troubles, possibly with another round of asset purchases.

tad rivelle, chief investment officer for fixed income at tcw in los angeles, said if trailing consumer price inflation fell again, a third round of quantitative easing was “probable.”

he told the reuters 2012 investment outlook summit in new york the u.s. central bank was taking steps to do what politicians could not: use trillions of dollars to stimulate the economy and prevent another recession.

rivelle, who is the top decision maker for tcw’s management of $120 billion in fixed income assets, said he favored investments in cheap, undesirable areas like subprime or alt-a mortgage pools, high-yield debt and “systemically critical financials.”

the government would backstop systemically important banks and financial firms, he reasoned, and the fed’s monetization of debt would help bolster the prices of mortgages and risky corporate bonds.

the fed has already completed two rounds of treasury purchases amounting to nearly $1 trillion. it is currently carrying out a program dubbed operation twist to extend the duration of its balance sheet by selling shorter-term u.s. debt and using the proceeds to buy longer-dated debt.

rivelle is not hot on safe-haven u.s. debt, where benchmark 10-year yields fell in 2011 from around 3.35 percent in early January to within a few basis points of 2 percent currently.

rivelle called the move “surprising” and said that either way, treasury yields were not likely to go much lower. Given the rate of real inflation as he viewed it, rivelle said they should already be much higher.

“if the fed is executing properly and is able

to get the economy growing,” he said, “then you should not like the treasury asset class because they will have to normalize.”

yields on t-bills, which are stuck at zero, were way too low, he added.

“a fair level for a three-month t-bill is at least 3 percent, you might even be able to argue it should be 4 percent,” he said.

turning to the euro zone’s sovereign debt crisis, rivelle said abandonment of the euro was nearly impossible.

“you can’t get the toothpaste back in the tube,” he said. “the euro will stand. because the alternative is holocaust of some kind.”

rivelle also said the european central bank needed to follow in the fed’s footsteps and use monetization to quell the financial crisis that is still engulfing the euro zone.

“the only solution here is for the ecb to behave more like the fed,” rivelle said. “it needs to embrace its inner lender of last resort. “

(editing by leslie adler)

august relatively unscathed. “it was a great unknown at the time, and

we survived it ... what actually happened was people realized the world didn’t stop turning, so they started spending again.”

at this point, “conditions are better than people think,” Joy said. “i think the u.s. market is well positioned.”

sowanick said strong u.s. corporate earnings are not being priced into the stock market. “almost everyone is trying to fade the equity rally,” he said.

auto sales and jobless claims have improved from a year ago, and the housing market, while still weak, does not represent the same level of economic drag as it did before the housing bubble burst, sowanick said.

sowanick pointed to the bush-era tax cuts, which were extended in late 2010, and the federal reserve’s quantitative easing

measures. “these are tailwinds rather than headwinds,

and put us onto a firmer economic footing for next year,” he said.

looking at where the standard & poor’s 500, which on monday closed at 1,257.08 points, is likely to close out 2011, sowanick, said, “i don’t think we’re hallucinating when we say there’s still a good chance to end at 1,365.”

(additional reporting by herb lash;editing by leslie adler)

TCW’s Rivelle: QE3 is likely

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inTerAcTiVeClick here to see an interactive package of graphics for the 2012 Reuters Global Invesment Summit:http://link.reuters.com/zaq25s

TWiTTerFollow Reuters Summits on Twitter:https://twitter.com/#!/reuters_summits

invESTMEnT SUMMiT 11

BY naTSUkO Waki london, dec 7

Money manaGers are trying to reduce the number of counterparties to focus on bigger and stable banks

to secure their assets and payments as they plan for the worst-case scenario in the euro zone debt crisis.

uncertainty about the outcome of the two-year-old debt crisis -- with the worst-case scenario being a break-up of the 17-nation currency bloc -- and shrinking liquidity are complicating the life of asset managers, who are already struggling with diminishing market returns.

“it’s been an operational challenge. we’ve reduced the number of counterparties significantly ... over the past 2-3 years it’s been massive,” rod paris, head of investments at standard life investments, told the summit on wednesday.

“we tend to deal with national champions, banks critical to the payment system of the country. smaller banks have fallen away. but there are newcomers in the list too, that is emerging market banks. we’re looking at more geographical spread.”

standard life has also stress-tested its portfolios against all the scenarios, paris said.

the uk financial services authority told british banks late in november to plan for a potentially disorderly break-up of the euro zone, or the exit of some countries, as part of their contingency planning.

banks have told reuters there is already rigorous testing of systems going on, including for a possible euro zone break-up, as part of a risk management process that has been accelerated considerably in recent years.

banks are constantly testing their capital, liquidity and operations, such as payments systems, for risks and as the euro zone break-up threat has risen, they are feeding that risk into their checks.

sergio trigo paz, global head of emerging fixed income at bnp investment partners, says the firm is avoiding certain types of instruments whose liquidity can disappear quickly.

“you want to be liquid, you do not want to be long in exotic markets, you don’t want to be in nigerian naira credit-linked notes,” he said.

“we avoid trading swaps and these types of

derivatives.” euro zone central bankers are looking

at scenarios that cover the possibility of a shock to the currency area that could trigger its partial break-up. the european central bank hosted a communications exercise with officials from national euro central banks last month that included a commercial bank collapse scenario.

some think the ultimate risk is in the banking sector itself. alan brown, chief investment officer at schroders, says the firm is looking for ways to gain market exposure without being exposed to banks.

“one of the ways you can get market position is through swaps. we are less keen on doing swap arrangements, and in terms of collateral we don’t want to take cash, we’d rather take bonds. we’re pulling up the drawbridge as much as we can,” he said at the summit.

“now we’re looking at all swap and other agreements to see if there were to be a change in a currency of a country, would our agreement still be in euros or drachma or lira.”

brown also said schroders was avoiding using banks that clear euros through peripheral euro zone centres such as madrid and sticking to centres in core europe -- preferably Germany.

“holding euros in a Greek bank in Greece might not be as clever as having them in Germany,” he said, adding that a u.s. bank

clearing euros in frankfurt was preferable than say a spanish bank clearing in madrid.

richard cookson, chief investment officer at citi private bank, said clients favoured stronger u.s. banks.

“european banks are having dollar funding and financing problems. we’ve certainly seen money flowing into stronger u.s. banks,” he said.

schroders’ brown is also braced for the possibility of capital controls in case the currency union breaks up -- as happened between czech and slovakia in 1993 when they split.

“if you see a change, there must be capital controls for a period. it’s not been the end of the world for slovakia, it’s in the euro,” he said.

stephen Jen, managing partner of hedge fund slJ macro partners, said diversifying prime brokers is one way to reduce counterparty risk. a prime broker -- usually from investment banks -- offers hedge funds clearing, trading and collateral facilities.

“nothing is assured. you have to think exactly where your money is. what people are doing is to have multiple prime brokers -- you can diversify,” Jen said.

“you reduce your risk and leave the minimal margin that you need to leave with them and put the rest in a triple-a rated bank.”

(additional reporting by carolyn cohn; editing by susan fenton)

Money managers try to cut number of counterparties

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invESTMEnT SUMMiT 12

BY HERBERT laSH new york, dec 5

Billionaire investor ken fisher, who last february had turned neutral on stocks, said on monday he has become

very bullish and finds most equity markets attractive.

fisher, a forbes columnist and chief investment office of fisher investments, speaking at the reuters 2012 investment outlook summit, said there was zero chance that the u.s. or global economy, including europe, would fall into recession.

the rally initially will be driven by a bounce-back from a volatile 2011 in which u.s. stocks are flat for the year and global equity markets are down about 7 percent.

“i’ve been net neutral on the market this year and i believe 2012 will be a very much nicer year,” fisher told the summit. “i’d be content to buy most places. i’m more optimistic than most people you’ll find,” he said.

since markets tumbled during the financial crisis in 2008, sectors that did the worst during the depths of the downturn have outperformed coming off the bottom, and they will likely continue to do so for awhile, fisher said.

fisher said he’s prone to overweighting southern europe as it is part of the bounce-back. later in 2012 he believes the bull market will roll into another phase, one with an orientation to both speculation and growth.

“the negative arguments are long in the tooth, the positives are not well-appreciated, the economy globally is much stronger than people think,” said fisher, whose woodside, california-based money management firm oversees $40 billion in assets.

recessions do not occur independently of other regions in the world, he said. in fact, people’s perception of downturns is misplaced in that most believe the most recent downturn is worse than previous recessions. Growth out of the past three u.s. recessions has been remarkably similar, he said.

“you can’t find a recession that began when the leading economic indicators have been high and rising, and they are high and rising. and they are high and rising on balance throughout the world. in america, they are quite high,” he said.

when fisher turned neutral last february, sentiment was still bullish. later in June, he said the u.s. stock market would finish the year only slightly higher before resuming a rally in 2012.

the benchmark standard & poor’s 500 index is up about 0.5 percent for the year as of monday, while a measure of global stocks, msci’s all-country world index is down about 7.3 percent year to date.

(editing by leslie adler)

BY RYan vlaSTElicanew york, dec 6

Leo Grohowski, chief investment officer at bny mellon wealth management, on tuesday forecast below-average returns

for the s&p 500 over the next three years, but said the current environment would likely “turn out to be a better entry point than exit point” for investors. speaking at the reuters 2012 investment outlook summit, Grohowski

said equities would continue to remain strongly correlated with headlines out of europe, though the market has already priced in a great deal of potential bad news.

Grohowski, who helps oversee $170 billion in assets, forecast 6 percent annualized returns for the s&p 500 over the next three years, below the historical average of nearly 10 percent but above the weak returns of the past decade.

he has a target on the s&p 500 of 1,275 by mid-2012 and 1,350 by the end of 2012, representing gains of about 8 percent from current levels. the s&p traded near flat at 1,257 on tuesday.

“no one will have that optimistic of a forecast if they don’t work things out in europe,” he said. “but if they can at least muddle through in europe -- and that’s a big if -- then gains are possible.”

fears that the euro zone’s sovereign debt crisis would spread throughout the region and erode u.s. growth have pressured equities in recent weeks, with the s&p 500 briefly

dropping into bear market territory in early october.

however, rising optimism that a solution to the european crisis would be reached as well as some improving u.s. economic data have since sparked a rally of about 14 percent from a 2011 closing low reached in october.

Groups closely tied to economic growth, including banks and energy, saw the biggest moves on both sides.

“we want exposure to economically sensitive groups that haven’t performed well of late,” Grohowski said, citing the energy and technology sectors, which he called “tactical and thematic overweights.”

“this is a good environment for shareholder value, but organic growth will be more challenging” with gross domestic product “constrained” to about 2 percent, he said.

share gains will come through dividends, stock buyback programs and merger activity, he added.

(editing by Jeffrey benkoe)

Fisher turns bullish on stocks

BNY CIO sees weak S&P 500

REUTERS inSidER

Interview: Billionaire Ken Fisher and Ameriprise’s David Joy http://link.reuters.com/ryc55s

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invESTMEnT SUMMiT 13

BY vikRaM SUBHEdaRand niSHanT kUMaR honG konG, dec 7

china will avoid a sharp economic downturn next year, offering investors an opportunity to benefit from strong

domestic consumption, particularly in the growing services sector, said mirae asset Global investments.

li cong, who helps manage more than $5 billion as chief investment officer of asia-pacific investments at the south korean asset manager, said he was optimistic that 2012 would be a better year for chinese equities as inflation eases and economic growth remains relatively steady.

“i don’t share the hard-landing concerns,” said li, adding that earnings growth at large chinese companies would be relatively resilient to domestic tightening and weak external demand from europe and the united

states. earnings for constituents of the msci china

index, a benchmark for asset managers investing in china, had grown 18-20 percent year on year, largely in line with consensus forecasts, said li.

but a combination of beijing’s tightening policies, aimed partly at cooling the country’s red-hot property sector, rising consumer prices and worries about the shadow-banking system has made chinese shares big underperformers in asia this year.

the shanghai composite index is down 17 percent this year, while the chinese enterprises index of top chinese companies listed in hong kong, the main gateway for foreign investors to china, is down 18 percent. by contrast, the msci asia pacifc ex-Japan index is off 14.2 percent.

sticky inflation has hobbled equity returns in asia this year, particularly in china and india, as rising consumer prices

have prevented governments from taking aggressive steps to stimulate the economy through monetary easing.

but inflation, at least in china, seemed to have peaked in mid-2011, said li, and should return to more manageable levels next year.

china’s annual inflation rate is expected to have eased sharply to 4.4 percent in november, a level that would reinforce the view that beijing is successfully beating down consumer prices that rose at a three-year peak of 6.5 percent in July.

“i think that cpi next year will definitely come down to a more comfortable region, meaning about 3-4.5 percent, which will the give the government more flexibility to change monetary policy,” said li.

li, who has more than a decade of experience investing in chinese markets, has dubbed his firm’s investment strategy biGs, an acronym that captures a preference for branded consumer goods, information

Mirae Asset: China should avoid a hard landing in 2012

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Construction workers set up a scaffold in front of the presidential palace in Taipei on May 5, 2004.

invESTMEnT SUMMiT 14

BY SUJaTa RaO london, dec 6

Growth in all four bric economies has surpassed expectations in the decade since the term came into

existence but india’s record on productivity, fdi and reform has been the most disappointing, the chairman of Goldman sachs asset management Jim o’neill said on tuesday.

o’neill, who coined the term, bric, in december 2001 to jointly describe the four biggest developing economies -- brazil, russia, india and china -- was speaking at the london leg of the reuters 2012 investment outlook summit.

“all four countries have become bigger (economies) than i said they were going to be, even russia. however there are important structural issues about all four and as we go into the 10-year anniversary, in some ways india is the most disappointing,” said o’neill who oversees almost a trillion dollars in assets at Goldman.

Just this week, india’s government caved in to opposition pressure and put on hold a landmark reform of the retail sector that was seen opening the doors to billions of dollars in foreign direct investment (fdi) in the supermarket sector.

the long-awaited measure, passed earlier this month, had been hailed as ending the government’s economic reform paralysis that is widely seen as the root cause of high inflation, shrinking capital inflows and a wider current account deficit.

“india has the risk of ... if they’re not careful, a balance of payments crisis. they shouldn’t raise people’s hopes of fdi and then in a week say, ‘we’re only joking’,” o’neill said.

“india’s inability to raise its share of global fdi is very disappointing,” he said.

united nations data shows that india received less than $20 billion in fdi in the first six months of 2011, compared to more than $60 billion in china while brazil and russia took in $23 billion and $33 billion respectively.

the glacial reform pace has hit india’s hopes for double-digit economic growth, o’neill said, adding: “india is as bad as russia is on governance and corruption and, in terms of use of technology, russia is in fact much higher than india.”

on the other brics, o’neill said brazil’s main problem was an overvalued currency which puts the country in danger of “dutch disease” -- a term first used to describe how north sea oil discoveries in the 1960s triggered a surge in dutch energy exports but also in the dutch currency, pummeling much

of the country’s manufacturing.china’s challenge was to effectively

manage a transition to a higher-consumption economy with slower growth, he said.

o’neill remains positive on russia but said much depends on what prime minister vladimir putin can deliver in terms of reform following an election at the weekend that left his ruling party with a much reduced parliamentary majority.

(editing by susan fenton)

technology, green energy and services. internet-related sectors in china are a

favoured pick for li since they overlap three of those themes.

the number of smart-phone users in china was likely to surpass pc users next year said li, with smart-phone sales expected to total 120-140 million units compared with 100 million personal computers.

“that’s a phenomenal change for china and that’s why we like the whole mobile internet value chain,” said li, adding that everyone from operators, equipment providers and software developers would benefit.

clean energy was another area that would reward investors, said li, largely because of the chinese government’s investment plans for the sector.

“at the moment we are particularly interested in natural gas plays followed by nuclear,” said li, adding that he expected china to resume its nuclear power programme next year after the march earthquake in Japan.

the consumer discretionary was the biggest sector allocation in mirae’s china sector leader equity fund at the end of september this year while natural gas explorer kunlun energy co ltd was listed at the fund’s top holding.

in the firm’s asia-pacific fund, china was the top country allocation ahead of australia while insurance heavyweight ping an insurance (Group) co of china ltd, online search company baidu inc and brewer china resources enterprise ltd were among the top holdings.

(editing by chris lewis)

Goldman’s O’Neill: India is the BRIC that disappointed

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invESTMEnT SUMMiT 15

BY SvEa HERBST-BaYliSS new york , dec 7

For years, running a hedge fund was the road to riches, but with the giddy years of double-digit returns at an end,

prospects for profits look decidedly more gloomy, top managers and investors say.

when famed short-seller James chanos launched his kynikos associates more than two dozen years ago, he had just $16 million to begin trading. but the manager of a fund that now has $6 billion in assets said those days are long gone.

“now, you can’t do that,” chanos said at this week’s reuters investment outlook summit. “if you can’t raise nine figures right out of the box, it is going to be very difficult, and you won’t attract institutional money,” he said.

Jane buchan, the chief executive of roughly $16 billion pacific altnerative asset management who helps state pension funds and other prominent clients select hedge funds to invest in, was even more blunt. “it is going to be a horrible environment for starting a hedge fund now,” she said this week in new york.

the reason for the current gloomy atmosphere is simple -- returns are off. the days in which managers could count on generating high double-digit returns to justify their high fees may be over, several speakers said.

this year is shaping up as a particularly poor one for the $2 trillion hedge fund industry, with some of the best-known managers in the red. the average hedge fund is down roughly 4.37 percent through november, according to hedge fund research’s broadest industry index.

the standard & poor’s 500, by contrast, is flat for the year.

yet, many hedge fund managers continue to charge a 2 percent asset management fee in addition to skimming off 20 percent of any profits. at some big funds, the fee structure is even higher.

“investors have to look at the fees versus the value,” buchan said.

she said at some point investors will start to question whether the managers are generating enough return to

justify the high fees. chanos said he’s a little surprised investors

haven’t rebelled sooner over the industry’s infamous 2-and-20 fee structure.

“you would have thought that competitive pressures would have hit a lot earlier,” chanos said, adding that collecting high fees “gets harder to justify in a lower return environment.”

if institutional investors start to press back more on fees, some see a time when managers of famous funds may choose to throw in the towel. that’s especially if overall returns don’t get back to the pre-crisis glory days.

“the hedge fund industry is looking more like the sports industry where players have a limited time to be at the top of their game and earn a lot of money,” paamco’s buchan said.

for now institutional investors appear to be sticking with hedge funds in part because returns on bonds and stocks aren’t great either. chanos said hedge funds still represent the best place for investors to generate alpha, or higher than normal returns.

on tuesday, the massachusetts state pension fund hired 10 hedge fund managers, including pershing square’s william ackman and highfields’ Jonathon Jacobson, to manage about $245 million. for the most part, massachusetts stuck with big name managers with long track records, proving how difficult it is for start-ups to get a seat at the table.

“we are still in this big-is-beautiful world where investors are veering toward the large hedge funds that seem safe no matter how much money they have lost,” said shawn kravetz, president and founder of esplanade capital, a small boston-based fund that concentrates on retail.

(editing by Jennifer ablan and matthew Goldstein)

Hedge fund managers lament end of golden era

Source: Thomson Reuters Datastream, HFR

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Percentage change in HFRX daily price index since 31/12/10

invESTMEnT SUMMiT 16

BY MikE dOlanlondon, dec 6

risinG ineQuality both within countries and between nations have reached critical levels that need to be

addressed to avoid trade, tax and regulatory backlashes that could strangle an already wounded world economy, european money managers say.

speaking at reuters 2012 investment outlook summit, taking place in new york, london and hong kong this week, the investors said four years of financial crises, austerity and rising unemployment in the west had exposed rising income and wealth gaps that damaged the sense of fairness required to bind societies.

the potential instability from damaging the broader social contract ultimately threatened those at the top of the pile as well as the aggrieved majorities.

“what people are starting to realize is if you’re wealthy, preserving wealth in a society that is unstable is not easy,” said arnaud de servigny, global head of discretionary portfolio management and strategy at deutsche private wealth management.

de servigny said that to the extent the 2011 crisis is about sovereign debt, it is “a crisis of solidarity systems.” as with previous periods of capitalism where intense bursts of activity led to big wealth gaps, he said it could take a

long time to turn around. alan brown, chief investment officer at uk

asset manager schroders, said public anger at social injustice had to be taken seriously and, if not, there was a real risk of protectionism along with swingeing wealth tax increases.

“in times of austerity, everybody believing there is fairness is important. there has to be a perception of fairness.”

brown said the world was currently characterised by free movement of trade, technology and money but restricted movement of labour. as a result, those in the developed world needed to acquire ever-more skills to even participate in economic growth.

“real wages in middle america haven’t now increased for 25 years. so when you see these ‘occupy wall street’-type protests, or the riots here in the uk, i think one would be very unwise to treat those as just being small things that will just go away.”

as the credit crunch of 2007 and 2008 morphed from taxpayer bailouts of failed banks into a sovereign debt crisis, government austerity and rising jobless, popular anger has grown about the malfunctioning of capitalism and the rising levels of inequality bequeathed by years of financial excess in the west.

the anger has spilled onto streets, from the “occupy wall street” protests in the united states, anti-austerity riots in athens or public sector union strikes in britain. liberal economists, such as nobel laureate Joeseph

stiglitz, have questioned u.s. capitalism that allows a super rich 1 percent of the population to grab the lion’s share of national wealth.

on monday, the organisation for economic cooperation development said the earnings gap between the rich and poor had reached its highest level in 30 years and countries should consider raising taxes on the rich to reduce the growing inequality between the haves and have-nots.

“without a comprehensive strategy for inclusive growth, inequality will likely continue to rise,” oecd secretary General angel Gurria said in a statement. “there is nothing inevitable about high and growing inequalities.”

hedge fund partner stephen Jen told the reuters investment summit on tuesday that the problem in the west was exacerbated by china’s integration into the world economy 10 years ago. “the return on capital and labour was fundamentally altered,” he said.

but he said constantly trying to protect western industries, banks and workers from rising competition from the developing world was a huge mistake.

“the constant bailout, using our money, our children’s wealth, has to stop. a forced transfer of wealth from taxpayers to the bankers? i don’t think it’s fair. we all need to recognise that we need to shape up to face up to emerging markets’ competition.”

Jim o’neill, chairman of Goldman sachs asset management, said rising unemployment was at the root of the tension and concerns would shift again once jobless rates started to fall. but he said inequality concerns within western countries often ignored what had happened worldwide.

“it’s completely under-appreciated that we are living through globalisation and an era of great narrowing in income differentials. Globalisation is taking hundreds of millions of people out of poverty, even if one of the outcomes seems to have been rising income differentials in developed countries.”

(additional reporting by sujata rao, natsuko waki, carolyn cohn;

editing by susan fenton)

Widening income disparity worries money managers

Occupy Wall street demonstrators protest in lower

Manhattan on nov. 17, 2011.

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inTerAcTiVeClick here to see an interactive package of graphics on income inequality in the United States and abroad:http://r.reuters.com/cec45s

invESTMEnT SUMMiT 17

BY andY BRUcE london, dec 1

Most rich-world stock indexes will recoup in 2012 only a fraction of their huge losses this year, a reuters

poll showed on thursday, with the threat of economic catastrophe in europe hanging over developed and emerging markets alike.

trillions of dollars have been wiped from share prices in 2011 and only six out of the 19 indexes covered by the survey are expected to finish next year higher than their 2010 closing levels.

the quarterly poll of around 350 equity strategists and economists was conducted before major central banks coordinated together in an unexpected move on wednesday to provide cheaper dollar funding, which sent global stocks soaring.

brazilian, chinese and russian stock markets will likely top the chart for performance, the poll showed, with gains of more than 20 percent from now until the end of next year.

by contrast, stock indexes in european countries that likely face recession look set for very mediocre gains, barely making a dent in their double-digit percentage losses endured this year. indeed, that might even prove too optimistic.

britain’s ftse 100 and the ftse mib in italy, now at the heart of the euro zone’s debt crisis, look set for a particularly disappointing year.

analyst forecasts assumed no catastrophic escalation of the debt crisis such as a break-up of the euro zone, a scenario that would most likely plunge global financial markets into meltdown.

indeed, a firm majority of respondents who answered an extra question -- 31 out of 39 -- said stock markets had not adequately priced in a break-up of the euro zone in some shape or form.

“putting the pieces together, we think euro area economic and financial risks are likely to remain centre-stage for now.” said Jan hatzius, chief economist for Goldman sachs, in a note.

“we forecast further falls in equity markets, most notably in europe, over the next three

months.” a poll of leading academics and former

policymakers last week suggested the euro area will not survive the crisis intact in its current form.

the emergency move by the world central banks to cheapen dollar funding for stressed euro zone banks recalled coordinated action to stabilize global markets in the 2008 financial crisis after the collapse of lehman

brothers. the major indexes covered by the survey

are currently trading at a 12-month forward multiple that is lower than their long term 10-year averages, according to thomson reuters i/b/e/s data.

chinese stocks are trading at almost half their average 10-year value, followed by stocks in the uk, france, hong kong and Germany -- all of which are cheaper by a third according to present prices.

all of the stock markets covered by the reuters global poll are currently in the red for the year, apart from the dow Jones industrial average and south africa’s Jse top 40.

reuters monthly polls of asset managers on wednesday showed a general decreasing trend in equity allocations to levels seen around the lehman failure, and a growing aversion to european assets.

britain’s ftse 100, europe’s biggest by market capitalisation, will probably see scant gains over the next year of less than 2

percent.Growth prospects for the uk economy are

dismal and it is hard to see what will drive stocks there higher.

“the european sovereign debt situation will be, and is, a massive cloud to the overall economic outlook,” said michael hewson, market analyst at cmc markets.

italian stocks, which have lost almost a quarter of their value this year alone, are not likely to recover much next year. italy now finds itself at the centre of the euro zone debt crisis and a lack of confidence among investors will do its share market little good.

brazil’s bovespa should gain around 23 percent to end-2012, topping the list of expected outperformers.

“brazil’s economic fundamentals are still very solid,” said octavio de barros, chief economist at bradesco. “most companies are

much below fair value, and stocks will become a much more attractive asset as interest rates fall.”

moscow’s rts, a perennial favourite among the reuters poll’s equity market bulls, is expected to jump around 20 percent.

the shanghai sse composite index is predicted to do even better, rising 22 percent after a couple of years of steep losses.

overall, asian shares are expected to excel in comparison with the muted returns in rich-world markets.

sydney’s s&p asX 200 will top equity gains among the developed markets, surging around 11 percent from now until the end of next year, according to the poll consensus.

the s&p 500 has performed far better than european shares this year and is expected to gain more than 7 percent by end-2012.

france’s cac 40, which has performed terribly in 2011 with a 17 percent loss, will at least claw back about 9 percent through to the end of next year.

(polling by ashrith doddi and shaloo shrivastava in bangalore; analysis by

sumanta dey and yati himatsingka. editing by ross finley and Jon loades-carter)

Poll: Hopes fade for 2012 rebound in global stocks

More on poLLsClick here to see for on Reuters latest global asset allocation polls:http://link.reuters.com/byt35s

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