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"Whilst several macro headwinds will linger in 2013, equity markets may continue to surprise on the upside, as analysts have been cutting their forecasts significantly. This should create more stock dispersion and a better environment for stock-pickers. A deflationary scenario is unlikely but will remain a risk that markets will worry about. Instead, we see positive global growth, albeit sub-trend, and a small pick-up in inflation. We expect some dislocation between equity markets and economies. Equity volatility was technically quite low in 2012; however, we expect this to rise, which could lead to violent sector rotations. In brief, we favour Asian equities and emerging markets, and will probably increase exposure to Europe at the expense of the US, based on more attractive valuations. This will depend, to some extent, on the political situation in Germany during election year. We are especially bullish on those countries comprising the Association of Southeast Asian Nations (ASEAN), although valuations are not cheap today. Despite close proximity to China, we do not view the region as a China-play, as most of trade is intra-regional. In addition to some well-publicised structural drivers, by 2015, the ASEAN should have agreements in place that allow people and goods to travel freely cross-border. Extensive high speed rail links are also being built. We expect to add on weakness."

David Coombs, Head of Multi-Manager Investments, Rathbones

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