So, where next?

As we allow ourselves a few days to catch breath at the year end, the over-riding feeling remains that 2012 will be as tumultuous as 2011 and an equally difficult year for investors to navigate.

In macroeconomic terms, Europe will undoubtedly continue to be the centre of attention. For all the political posturing of the last couple of weeks, no immediate solution to the ensuing debt problems has actually been agreed. As they have a habit of doing, markets may well try to force the issue early in the New Year. While still unpalatable, perhaps the onset of recession or signs of deflation in Germany will see the stance against quantitative easing soften at some point to alleviate the shorter term funding issues.

Alongside Europe’s travails, our eyes continue to be drawn to Asia. With Asia one of the largest recipients of European financing in recent years, focus may switch to the resilience of Asian growth in the face of a liquidity squeeze – particularly if the impact of the recent policy tightening measures has not been judged correctly.

Elsewhere, though, the US may be the one bright spot with low growth but some signs of stabilisation in both confidence and activity. Indeed, the ongoing European banking issues could yet provide a welcome boost to US banks, who appear to be further down the re-capitalisation path than their western peers. For all of this, however, it remains unclear how the impending presidential elections will impact near-term sentiment and policy as both sides of the political spectrum jostle for the limelight.

As ever, though, with problems come investment opportunities for the nimble. The de-rating of certain cyclical areas in recent months is already providing a valuation argument to neutralise equity portfolios away from the defensive stance that worked so well this year. It is perhaps not yet the time to get outright bullish, but it seems unlikely from this point that we will see the same degree of outperformance of the defensive sectors – absent of any extraordinary event – even if markets continue to drift downwards.

Elsewhere, the ‘safe haven’ status of government bonds continues to look precarious and with the US dollar still hovering at near-term lows, this may be the year we see the dollar take on the mantle of the ‘risk off’ trade of choice from what appear to be still cheap relative levels.

So with breath taken, we remain cautiously optimistic about the outlook for investors. Credit crises have never been solved within a year and we remain some way from clear water in macroeconomic terms. But, while returns may not match those of earlier in the decade, opportunities will undoubtedly offer themselves up in what promises to be another interesting year!

Joe Le Jehan is an analyst in the Cazenove multi-manager team.