What the analysts say . .. Chris Johns, head of global research and equity portfolio management, BIAM Bank of Ireland.
Market forecasters are as fond of clichés as sports commentators; the investing equivalent of "we'll take it one game at a time" is the preamble to every outlook statement: "The current environment is unusually uncertain."
The trouble with clichés is that they are hard to avoid and often very true.
Date fetishism means that we are always asked in December about our year-ahead views - and, yet again, it's all very uncertain.
Trouble is, I can put my hand on my heart and say that I have rarely witnessed such a wide range of views about what happens next.
Global growth? Lots of talk about a US recession, but plenty of respected forecasters argue that it will be another "muddle through" year, with the fabled US consumer refusing to roll over and die.
Credit crunch? Central banks currently doing impressions of helicopters (that's a reference to Milton Friedman's favourite way of expanding the money supply) give some of us hope that we will not still be talking about "financial crisis" this time next year.
Inflation? Dropping half a trillion dollars into the European banking system this month won't do much for the ECB's reputation as sado-monetarists.
Company profits? I'm not sure there is much consensus about whether US profits, for example, will rise or fall, let alone by how much.
Property? Well, the less said about that the better.
Next year will, therefore, be a game of two halves. All of this is what it is. Uncertainty will persist until visibility is restored.
Apposite clichés aside, it would be wise to bet that the malaise gripping financial markets is likely to persist for a while yet. But if there is anybody out there who can lift their gaze from the short-term noise, I would urge them to focus on one thing: "value" stocks have recently done worse than they did during the technology bubble.
When markets are that extreme it is always wise to go the other way.
There are plenty of very cheap equities out there. Provided the world doesn't actually end any time soon - not my call for 2008 - that represents nothing but opportunity.
Toby Vaughan, Asset Allocation Fund Manager, F&C
The closing months of 2007 have been highly volatile following news of more write-downs of assets at leading US banks exposed to US subprime mortgages. Risk aversion has returned to heightened levels and liquidity, between banks, has tightened to create a second wave of the credit crunch that dominated financial markets in the summer.
The implications of this for global growth are sufficiently serious to have warranted an organised, co-ordinated and focused intervention, in the form of injections of liquidity, by major central banks. This has had the effect of easing money market stress for funding over the year-end period but investors are waiting to see how this plays out in the new year.
If markets remain unsettled, there are real fears that the slowdown already being witnessed in the US economy will develop into a recession and pull global growth back in its wake.
The macro-economic risk is now deemed higher than it was a few months ago and the key question for 2008 is: will the US economy go into recession?
We continue to prefer equity markets as we believe the fundamental backdrop is supportive. Outside of financial stocks, equity valuations are still good and corporate balance sheets are strong.
Within equities our preference is for emerging market and European equities. Companies in both these regions are showing strong earnings momentum and favourable relative valuations.
Equities in emerging markets economies remain well supported with continued inflows from global investors as well as rising participation from cash-rich local investors. Domestic demand in these economies is strengthening and being reflected in investment strategy with increasing exposure towards equities connected to domestic demand.
Europe has a more diversified export base than it used to and so is less exposed to the vagaries of the US economy than in previous times. It also has improving labour markets and its consumers are less geared (debt financed) than their US and UK counterparts.
We remain underweight fixed income. Although risk aversion could continue to propel further "flight to quality" in the form of investment in government bonds, in the near future, we see limited potential for this asset class over the medium term.
Eugene Kiernan is head of multi-manager investment, AIB Investment Managers
This was a year when several key market trends changed direction. Larger stocks started performing better than "small cap" stocks, having been in the shadows for several years. Growth stocks outpaced their value-based counterparts, and financial stocks, which had set the pace for markets in recent years, ran into the wall of sub-prime uncertainty around the world.
Yet global markets are likely to edge a positive return in 2007 and successful investment strategies have been those able to steer a course through this changing market landscape.
Next year may well be more of the same. It will be very much about visibility. The fog surrounding the extent of any sub-prime exposure and its knock on effects on credit and the real economy is the near-term issue for stock markets. We believe there will be important signposts in the early part of 2008. By February, we will have seen the fully audited full-year numbers from many of the key US players in this sector. We should also by then have a better sense of the full extent of exposure in Continental Europe. By March/April we will have seen the peak of US mortgagees moving off low teaser rates and facing some degree of "payment shock". Markets very much want to clear these hurdles.
The co-ordinated central bank action we are seeing currently will ultimately have significant positive implications for markets and economies
The two most important things for equity markets always are interest rates and profits. Our view is that we will see substantially lower interest rates in the US facing into this environment and little threat from interest rates elsewhere.
We believe that the published consensus profit growth numbers for most regions are too high. But this shouldn't surprise. Most of the company guidance in recent weeks has highlighted the risks around these growth numbers.
Equity markets are valued reasonably but this won't be enough to propel a robust rally. Markets are in a "show me" mindset and will look to see positives before believing. Stocks with the right characteristics, which we believe are visible earnings growth, good free cash flow and strong balance sheets, are deserving of a place in portfolios. Once we've navigated the earlier part of the year we can see better opportunities for markets. We are not pessimistic, just patient and careful.
Andrew Milligan, head of global strategy, Standard Life Investments
Volatility will remain a feature of financial markets in 2008. Investors must consider three inter-related issues - problems in the credit markets, the outlook for corporate earnings and inflation pressures - to make successful investment decisions in the coming year.
Tensions in money markets continue and our analysis suggests that this issue is part of a wider problem, namely a fundamental reassessment of the pricing and availability of a whole range of credit instruments globally.
Into year end, more investors have come round to the view that the current situation will persist well into 2008, as a range of banks adjust their balance sheets.
A second issue for investors is the outlook for corporate earnings, reflecting in turn prospects for the US economy. Given the current environment, economists have reduced their growth forecasts for 2008 while models assessing the probability of a recession are flashing amber. The downturn in the US economy in 2008 looks set not only to be serious but also of a very different nature to that seen in 2001 as a consumer slowdown is generally longer lasting than a corporate recession.
Thirdly, central bankers face a dilemma in coming months with inflation. Inflation expectations have deteriorated due to the surge in commodity prices. Headline inflation is likely to rise in all the major economies in spring 2008.
However, we anticipate a noticeable slowdown in growth in all the major economies in the coming year, which should keep core inflation under control and ultimately allow aggressive rate cuts.
The performance of bonds and equities should be better than cash and property. European government bonds, for example, will benefit in due course from a more noticeable easing of policy by central banks.
The key issue for equity investors in 2008 will be the direction of earnings. A combination of credit problems, cost pressures and a weak economic and thus pricing backdrop mean that a difficult environment is expected for 2008.
We expect analyst forecasts for company profits to be downgraded significantly.
Nonetheless, our research concludes that equity markets can hold up well as long as earnings growth remains positive in the coming period.
