Asia will not be immune to Europe's credit woes but will send some positive signals throughout the coming year, Russell Investments' chief Asia-Pacific investment strategist said.
"While Asia will not be immune to tighter credit conditions in Europe, we do see some positive news coming out of the region," Andrew Pease said in a report.
"Inflation appears to have peaked, share market valuations are attractive across the region, and China, specifically, has scope to significantly ease monetary conditions," Pease said.
Russell's strategists have forecast a reasonably soft landing for China, where authorities have started to ease monetary policy.
"Combined with other emerging-market easing, China and these emerging markets will, along with the United States, once again, contribute as engines of growth for global gross domestic product," they said.
The main risk for 2012 was a significant slowdown in export demand as Europe slid into recession but the euro held the key to market sentiment, they said.
"Given the fragility of the European banking system, Russell considers potential European policy errors and inaction as the single largest source of systemic risk and threat to global market sentiment."
However, they said investors could expect modest world economic growth in 2012, driven by Asia and the United States. They added that improved economic news, continued strong earnings growth and expanding pockets of private investment strength would spur the US recovery.
Russell's strategists have forecast US equities markets to rise 10 per cent over 2012, with the S&P 500 Index reaching 1300 points, Russell 1000 Index reaching 720 and US 10-year Treasury yields at 2.5 per cent to 2.75 per cent.
As a result, investors would have to fight for virtually every basis point and have firm regional diversification strategies.
"Making gains this year will require an active, global, multi-strategy approach and identifying outperforming managers in every sector and region will count more than ever," Russell's global chief investment officer Peter Gunning said.
