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Victoria Tait is a journalist with InvestorDaily, a Morningstar publication.

Global economic growth prospects are positive for 2012 but the same cannot be said for equities, according to economists at three large financial institutions.

Europe's debt woes will continue to dominate the landscape, exacerbating stockmarket volatility as equities rally when potential solutions emerge and fall when hopes are dashed.

Later in the year, the US presidential election could also make investors skittish, particularly if the eurozone's debt problems are not resolved by then.
 
"In this environment, we continue to see stockmarkets remaining volatile and stuck within a trading range," HSBC global head of equity strategy Garry Evans said in a report.

However, Evans said opportunity abounds in rollercoaster markets.

"Valuations in global markets are inexpensive by historical standards, and this should offer some support to equity markets," he said.

"But in the short run, catalysts will matter more. If the eurozone were to fall apart, for instance, stocks would be likely to fall irrespective of how cheap they were."

CommSec chief economist Craig James agreed the European crisis would dominate market sentiment, at least over the first quarter of 2012.

"We also expect that the US economic recovery will continue and China will ease monetary policy, thus boosting growth prospects," James said in a report.

"The Australian economy should remain in balance with strong investment spending weighed against average growth in consumer spending and housing activity," he said.

James tipped Australia's economy to grow 3.6 per cent over 2012, above the norm of about 3 to 3.25 per cent. He said interest rates would remain low with inflation remaining below 3 per cent, keeping the Reserve Bank board from tightening monetary policy.

However, his optimism did not extend to stocks.

"While we would like to be more positive about sharemarket prospects, we retain a soft target for the All Ordinaries of 4650 at the end of 2012," James said.

"Aussie investors are expected to only slowly embrace stocks again over 2012 while global economic uncertainty and a firmer Aussie dollar will also restrain enthusiasm of foreign investors for Australian stocks."

David Fisher, head of global and emerging markets product management for bond manager PIMCO, said Europe's problems could highlight opportunities for financial advisers in Australia.

Fisher noted Australians' penchant for stocks and other risk assets and said a domestic or international bond portfolio was an important anchor in view of continued volatility in global equity markets.

"While bond yields will remain low in 2012/13, as an investment option we expect bonds to remain attractive to Australian investors, especially on a hedged basis," Fisher said.

"Hedging global bonds adds 3 to 4 per cent additional return in the current environment and we are also seeing increasingly attractive spreads outside of government bonds.

"As a result, our global bond strategy has a current yield of 8 to 9 per cent, and while that will fluctuate, it demonstrates that potential returns for investors could be attractive in the year ahead."