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LONDON (Reuters) - Out with the old year, in with the new and for investors uncertainty is likely to be the only certainty once more.
The euro zone debt crisis is far from resolved, turmoil in the Arab world has shifted to Syria and Iran has threatened to stop the flow of oil from the Gulf if sanctions are imposed due to its nuclear ambitions.
2011 was a dire year for equities outside the United States with world stocks poised to drop by around eight percent and emerging markets faring far worse.
Crude oil has been among the best performers with a roughly 10 percent increase and gold has matched it as a loss of confidence in the euro zone accelerated a flight to bullion.
So where next? The answer to that question depends on whether you believe policymakers in Europe, Asia and America will muddle through or whether a new cataclysm is imminent.
While the global economy remains shaky, central banks will maintain ultra-low interest rates, a potential fillip for stocks as bond yields languish in countries viewed as safe havens.
Globally, inflation should subside though the path of oil prices is hard to discern given the tumult in the Middle East and Gulf.
Signs of a modest U.S. revival and China's ability to gently massage down economic growth in order to prevent inflation taking off will be key for the markets but the euro zone remains the great imponderable. Italy alone faces frightening debt refinancing hurdles in the first four months of the year.
Having proved remarkably resilient all year, the euro is ending the year on a downslope, breaking below key support levels to its lowest point in 2011. An Italian bond auction on Thursday saw yields edge down but only slightly.
"Given the scale of its funding requirements, there are still big concerns about Italy's ability to get through 2012," said Nicholas Spiro of Spiro Sovereign Strategy. "Next quarter is going to be all about Italy."
Next week sees the release of purchasing managers' indices for January and December inflation figures, a first new year gauge of the euro zone's economic malaise. In terms of debt supply, France and Germany, but not Italy, come to the market.
While there are plenty of pessimists predicting the euro zone cannot survive in its current form after its leaders failed to construct a "bazooka" big enough to scare the markets off, others believe there is potentially enough in train to take the sting out of a debt crisis now well into its third year.
The combination of the European Central Bank's provision of unlimited three-year liquidity for banks, steps towards deeper euro zone fiscal integration, the prospect of the IMF getting more crisis-fighting funds and an agreement to bring forward the currency bloc's permanent rescue fund to mid-2012 may point to some relief ahead without the need for "shock and awe" measures.
William de Vijlder, chief investment officer at BNP Paribas Investment Partners, believes the incremental progress made by the euro zone is too easily dismissed.
"The liquidity which has been put in the system via the first 3 year LTRO ... in combination with an overweight of low yielding low risk assets and safe havens create a huge pent-up demand for risky assets," he said. "The big question is when this will be unleashed. 2012 is about spotting this catalyst."
Dan Morris, Global Strategist at JP Morgan Asset Management, is essentially in the same camp.
"As long as Greece advances enough with its reform program for the IMF and EU to continue supporting it, as long as the ECB aids the banking system, and as long as Italy and Spain persevere with their own fiscal adjustment programs, confidence should slowly return," he said.
"Those looking for another summit and a definitive resolution that 'solves' the crisis will probably be disappointed."
On the other hand, European funding of the International Monetary Fund is not yet agreed, the permanent European Stability Mechanism may not get enough firepower in investors' eyes, and ECB money may be hoarded by banks facing demands to raise capital levels rather than lent to business or invested in bonds. Possibly most crucially, the lack of a European growth strategy could condemn countries like Greece and Italy to a downward spiral of recession that prevents them cutting debt.
Plenty of experts maintain that only much more aggressive buying of government bonds by the ECB - something it is highly reluctant to do - can buy the euro zone enough time to reform.
Ratings agency Standard & Poor's is expected to downgrade any number of euro zone sovereigns in January and maybe as soon as next week, putting a big question mark over the 'AAA' rating of the bloc's existing bailout fund. However, given that threat was delivered three weeks ago, it may already be priced in.
If catastrophe is averted, equities could be the best long-term bet not least because investments in traditional safe havens will almost certainly lose money - inflation-adjusted yields on U.S., German and British government bonds are all negative.
The State Street Investor Confidence Index dipped slightly in December but showed glimmers of optimism in Europe.
"European investors are more optimistic than their North American and Asian peers for the second consecutive month," said State Street's Paul O'Connell. "It does not necessarily mean that prospects for the European region itself have improved, but it does suggest that European institutions are more willing to allocate to equities both inside and outside Europe than they were earlier in the year."
Philipp Baertschi, chairman of the investment committee at Swiss private bank Sarasin, also believes that for those in for the long haul equities could be cheap, barring a deep recession.
"Investors who believe that a long-lasting global depression is very unlikely and can tolerate fluctuations in returns should have a correspondingly high equity weighting in their long-term strategic asset allocation," he said.
In a world where sovereign debt either offers no return or has become highly risky, blue chip stocks or high-grade corporate debt, ideally of companies with hefty emerging market exposure, remain many money managers' investments of choice.
But given all the uncertainties - who could have predicted the Arab Spring this time last year or the devastation wreaked on Japan - picking the right moment to dive in will be hair-raising.
"A very nasty outcome, with a collapse of the euro zone triggering a steep global recession, perhaps exacerbated by structural problems in China, is not impossible," HSBC global equity strategists said in a note. "But, since equity valuations are inexpensive and investors already bearishly positioned, an upside surprise cannot be ruled out either."
Additional reporting by Simon Jessop, Carolyn Cohn, Sujata Rao and Mike Dolan; editing by Patrick Graham