Knowing where markets and economies will go and where to invest accordingly is at best an informed guess. However, these three well-known fund managers have demonstrated a track record of getting it right in the past. We ask them what lies ahead in 2013.
CHINA: Anthony Bolton, manager of Fidelity China Special Situations investment trust, and former manager of Fidelity Special Situations:
"China is at a very interesting juncture. We are now one year into a slow easing of policy and are starting to see evidence that activity has stabilised after a period of substantial slowdown. Some areas, such as fixed asset investment, are expanding again. An increased supply of credit is definitely helping. Despite this background, equity valuations generally remain very depressed and sentiment is negative, especially in the domestic A share market. However, this is a market that can turn on a sixpence and I would be very surprised if 2013 isn't a much better year after an A share bear market that has lasted more than three years.
China has its challenges, including a likely significant rise in bad debts at many banks and local finance vehicles. However, China has ample resources at the centre to tackle these issues. I remain less concerned about these financial challenges, rather the main issues ahead for China are related to the need for longer-term social and political change. We will need to watch closely what reforms are introduced over the next year to see the true colours of the new regime.
The nature and quality of growth in China is changing. The export and investment-driven model is being gradually superseded by a consumption-driven one. This means gross domestic product (GDP) growth in the future will be lower, but the quality should be higher.
As ever there are risks. China's deteriorating relationship with its neighbours, especially Japan, is a worry. Friction between North and South Korea remains a possibility. However, despite these risks 2013 could surprise investors on the upside."
BONDS: Jim Leaviss, head of retail fixed interest, M&G Investments
"We do not expect a repeat of the very strong gains of the past year but are confident that there are still attractive investment opportunities in several areas of the fixed-income universe.
The recent deterioration in the UK's current account deficit of 5.4 per cent of GDP is of particular concern and sterling looks extremely vulnerable in this environment. But UK index-linked bonds continue to look attractively valued, although proposed changes to Retail Prices Index (RPI) inflation must be closely monitored. I also continue to favour non-financial corporates because the financials sector still has major structural challenges to face.
But most of the positives are coming out of the US. Recent housing market developments are particularly encouraging: available housing stock decreased significantly in 2012 and is now below four months of supply, a level that has often preceded a strong pick-up in growth. US house prices have been rising but remain significantly below their peak levels. The Federal Reserve (the US central bank) has sought to bolster the market by shifting the focus of its quantitative easing programme away from purchases of US Treasuries towards mortgage-backed securities.
I remain confident on the US Dollar as well as US investment-grade and high-yield corporate bonds because the country is unlikely to go over the fiscal cliff - allow automatic spending cuts and tax rises equivalent to 4 per cent of GDP to come into effect in 2013. Neither of the nation's two main political parties can afford to let the country slip into recession, the inevitable result of the fiscal tightening.
I urge particular caution when taking on euro exposure, but inflation-linked German paper seems to offer attractively priced protection against an inflation overshoot in the medium term. Our preference for core over periphery is echoed in the corporate sector."
GLOBAL INVESTING: Jeremy Tigue, manager, Foreign & Colonial Investment Trust
"With so little clarity with regard to the economic outlook and future direction of markets, it makes sense to adopt a back-to-basics approach - one that focuses on returns in the form of income. There is no shortage of concerns to worry about, but stock market investors are being paid to wait for better times with levels of income that look far more attractive than anything else on offer. The most likely outcome in 2013 is a small rise in stock markets, but most of the return comes in the form of income. So if you are buying shares with a dividend yield of 3-4 per cent you will get that return plus maybe 2-3 per cent from capital growth. But I don't think it's going to be a year when you get outstanding capital returns from any stock market because there's too much uncertainty around and the valuation argument that existed at the beginning of 2012 has gone away.
Investors will have to look to the stock market if they want to find any income at all. For those wanting an immediate high income they should look to secure sectors like utilities and others where the earnings are pretty reliable.
With regard to the so-called US fiscal cliff I would expect a deal early next year. While first-half growth overall may be affected, it will not drag on like the eurozone crisis. Companies have been preserving their cash but if certainty returns they will be more interested in spending and in making acquisitions, which would be good news for the stock market.
But growth will be stronger in the emerging markets which you can access either by investing directly or by buying companies listed in the UK or other developed markets which have a lot of exposure to emerging markets. People were worried about China and its leadership transition, but as we go into 2013 things should start to pick up with a recovery in activity: the worst has probably been seen with regard to Chinese growth and 2013 will be a better year for the Chinese economy. It can't keep growing at 10 per cent a year but even at a slower growth rate of 7-9 per cent this would still be very good."
