Investors should expect another turbulent year of market volatility during 2012 from a mix of heightened policy risk, political uncertainty, low growth and low interest rates, all of which will translate into modest investment returns, according to BofA Merrill Lynch Global Research’s 2012 Year Ahead Outlook.

Against a backdrop of a looming recession in Europe, a still-struggling U.S. economy, high oil prices and slower growth in China, the macro analysts forecast global economic growth of approximately 3.5% during 2012. The team anticipates that credit and commodities will outperform equities in the first half of 2012 and recommends that investors overweight corporate and emerging market bonds.

“The global economy can weather a normal size recession in Europe, in our opinion,” said Ethan Harris, co-head of Global Economics Research. “The U.S. faces its own challenges, with gradual fiscal tightening and considerable uncertainty around policy after the election. As a result, while we expect solid 3% GDP growth in the current quarter, we look for growth to slow to just 1% by the end of 2012.”

To read the full text of the BofA Merrill Lynch Global Research report:
click here.