Equities: Find pearls when world markets are your oyster

But many also believe that the outlook for the UK is positive, with domestic equities well placed to continue their resurgence of the past year.

Investors who kept their nerve and stayed in the stock market were rewarded with a better performance in 2010 than they might have expected at the outset.

The rally has clearly fuelled optimism for 2011. A poll by the Association of Investment Companies (AIC) revealed that more than 90 per cent of managers expect markets to rise over the next 12 months. Here is a sample of expert predictions for stock markets in 2011.

Better than expected UK market performance over the past year has boosted investor confidence back to pre-credit-crunch levels, according to broker TD Waterhouse. Its 2010 Investor Confidence Index found that half of UK respondents were more optimistic about the stock market today than they were a year ago.

Gavin Oldham, chief executive of The Share Centre, was similarly upbeat about the prospects for the year ahead. He predicted that this year will be the first for 12 years in which the FTSE 100 breaks into new ground, and will finish the year above 6,750.

"As businesses look forward to a leaner, more efficient post credit-crunch world, investment and earnings will rise on the back of continued low interest rates," Oldham said.

On a note of caution, he pointed to the potential for the UK to be caught in the middle of a weakening euro and strengthening dollar. But he added: "However, the UK market performed well in the 1980s with a strengthening pound and we think it may repeat this experience," he said.

Andrew Bell, chief executive of Witan Investment Trust, said the relatively strong financial position of many companies should enable a more positive view towards hiring and investment. "I think that investors will be surprised by the ability of financially strong, well-managed blue chips to grow sales and profits, even in an anaemic growth environment," Bell said.

EUROPE

Ian Ormiston, manager of the Ignis European Growth fund, predicted that investors would get good returns from Europe over the next 12 months. While sovereign debt crises will continue to represent the biggest risk to investors, Ormiston believes the large northern European economies with healthy corporate and domestic finances are set to deliver both economic and market growth.

"The balance between negative sentiment and positive fundamentals creates an excellent opportunity for Europe's successful companies, which derive a large portion of their earnings outside Europe, as the fall in the value of the euro benefits them," Ormiston said. "The macro noise will not abate in 2011 but solid companies will continue to deliver strong profit growth and equity returns to the bold investor."

The biggest risk is if the bond markets continue to pick off peripheral countries, he said, adding: "Portugal will soon follow Greece and Ireland into seeking help but the big prize in the battle for the euro remains Spain. This test of European political resolve versus market dynamics represents the biggest sentiment driver in the coming year."

Luke Stellini, European equity product director at Invesco Perpetual, said he was more bullish about the outlook for Europe than at any time in the past three years.

"While valuations continue to discount extremely high risk premiums, those risks are receding. History, were it to repeat itself, points to a very attractive entry point," Stellini said.

EMERGING MARKETS

Emerging markets are widely predicted to provide the biggest returns over the next year, yet there are concerns that equities in Asia in particular are overpriced.

However a bubble remains unlikely, according to Nick Price, manager of the Fidelity Emerging Market Equities fund. "I continue to find attractive opportunities at reasonable valuations. Regardless of any near-term volatility in equity markets, I remain extremely positive over the long term," Price said.

UNITED STATES

The US was the least favoured region in the AIC survey of investment trust managers, with just 8 per cent expecting it to be the best performing sector in 2011.

Among those optimistic about the US, Terry Ewing, manager of the Ignis American Growth fund, believes US equities will rally as economic growth improves, driven by strong corporate earning and increased M&A activity.

"Overall we believe market growth will be driven by better than expected profits growth, solid margin performance, a recovery in the lagging financial sector, support from emerging market growth and a switch from bonds to equities by asset allocators," Ewing said.