Investors need to focus on the bigger picture in order to survive the challenging market conditions that are set to continue throughout 2012, according to the head of an asset allocation team.
"It's hard to say [the markets] are going to be that much different from where we are now," Mercer dynamic asset allocation team head in Australia and New Zealand David Stuart said.
"At this juncture, we'll be looking at pretty sluggish growth in the developed countries.
"Part of Europe is probably already in recession and Europe as a whole is likely to have very weak growth next year. The United States may be modestly stronger, but the impact of Europe, if it does slip into a deeper recession, could be quite significant."
Stuart said emerging markets could provide some relief, particularly from China's tight policies to control inflation.
"There's signs that inflation is coming down now and particularly against a weakened global backdrop, we may see an easing of the breaks," he said.
Mercer's Quarterly Market Valuation and Review, completed at the end of October, recommended medium-to-long-term asset allocation benchmarks for riskier growth assets.
"Talking to our clients, we've not seen the same level of reaction to market weakness as we possibly saw in 2008, so I think people have recognised the knee-jerk response," Stuart said.
"We encourage them to focus on the medium term because it can be destructive to your investment performance if you get too short-term focused.
"We would still remain modestly optimistic, but the risks are certainly very elevated and it's very hard to forecast what the political outcomes are going to be."
He said Australia's superannuation portfolios tended to hold a lot of equity risk due to a "home bias".
"It's pretty high in Australia. We consider it one of the highest in the world and it's also one of the few which hasn't meaningfully reduced over the last 10 years," he said.
"Given that the Australian market itself is pretty concentrated with BHP and the four banks constituting a large proportion of the market, we would say there are probably too many eggs in one basket in some investors' portfolios."
