As investors enter 2014 amid continued concern of low returns, Russell Investments' strategists pick through the opportunities - and the risks - the new year poses.
On the positive side, Russell's strategists highlight signs of economic healing in Europe and Japan, along with improved growth outlook for the US.
They believe this should keep equity markets moving slightly higher, with some fits and starts over significant policy changes in Japan and still a less than perfectly unified Europe, which will create occasional tension.
Global equities should outperform cash and fixed income throughout 2014, according to the strategists.
However they warn that a large portion of equity market gains made over 2013 could dissipate if growth disappoints and investors worry that monetary policy has reached its limits.
Other potential negatives include an outbreak of another crisis in Europe, or US policy makers' failure to reach an agreement on fiscal policy.
More generally, the strategists said there is still the risk that growth in the developed economies fails to take hold, with businesses and household remaining cautious.
They note another risk for global equity markets could be a speculative overdrive, if confidence in the economic outlook takes hold and markets overshoot, as has happened in the past.
On Europe, the Russell strategists said as deflationary forces gather strength, some of the biggest concerns for the market include the weak condition of banks, their toxic connection to governments, and the negative impact on growth from a lack of credit.
Reflationary policies in the form of less austerity and continued support from the European Central Bank (ECB) will play an important role, they added.
Eurozone growth of between 0.5% and 1.0% is expected, alongside a gradual and modest recovery in demand, combined with less austerity and continued strength in trade across the region.
In the US, the strategists believe much of the current high value in equities stems from anticipation of better economic growth this year. In 2013, stock performance reflected the anticipation of positive growth for the following year, so continued gains rely on those expectations being validated.
The strategists see the Asia-Pacific region as well-positioned to leverage a global recovery, particularly any uplift in global trade.
Russell Investments notes both China and Japan are pursuing credible economic reform processes that, while not without risks, are running as expected.
The strategists believe the risks to the Asian growth story in 2014 are "low" - in contrast to Europe's "moderate" risk rating.
However, key watch points include Japan's bond market and policy actions tied to tax reform as well as potential challenges to the Chinese credit markets from rising rates and questions over loan quality.
Russell's global head of investment strategy Andrew Pease said: "We may be headed towards a low-return world, but this is not a ‘set and forget it' year.
"In this climate, we feel top-down active management becomes more important because market over- and undershoots could provide opportunities for astute investors."
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