The unsolved European debt crisis is the biggest investor concern this year, and gloomy sentiment in the market has led investors to rush to perceived safe havens, driving government bond yields to the lowest levels for a generation, according to the report.

While taking inflation into account, a majority of these government bonds were de facto negative in returns. Combined with negative fundamentals such as high debt levels, government bonds of developed markets do not represent good value on a medium-term basis.

The outlook for emerging markets is brighter though.

Driven by factors such as industrialization and urbanization, as well as more robust fiscal positions than many Western economies, our long-term outlook for emerging market economies remains strong.

Worries over the international economic picture and in particular concerns over sovereign debt in the eurozone have dominated stock market sentiment in recent months and are likely to continue to do so.

However, the superior ability to combat any global weakness gives the mainland and Hong Kong an advantage compared with other developed economies.

“Outlook for 2011” the themes of last year continue to be highly relevant today and will once again be the main drivers of returns in 2012. The investment environment is therefore likely to remain highly challenging with a continuation, at least for a time, of the current environment.

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