The major task this year for financial advisers and private bankers will be to manage investors' expectations: the huge returns from equities for 2003 will not be repeated this year. This year, they will find their work somewhat easier if they do a good job as the expected return from global equities will be more or less the same as last year. Citigroup Global Markets global strategist Ajay Kapur expects global equities to rise by about 12 per cent this year. This compares with about a 10 per cent increase in the MSCI AC World Index in US dollar terms since the beginning of the year. 'Considering the backdrop [including rate rise, rising oil price, slowing earnings growth and widening geopolitical conflicts], the performance [last year] is notable,' Mr Kapur said in a report. He noted that earnings growth was likely to slow this year but equities tend to react more to leading indicators than earnings and investor confidence is healing. The leading indicators will bottom out in the first quarter but he expects the IBES consensus global earnings per share growth to halve to 12.4 per cent this year from 23.8 per cent last year. On the valuation front, global equities still look attractive. 'Higher-dividend payouts, stock buybacks, LBOs [leveraged buyouts] and increased merger and acquisition activity are catalysts that can unlock the unrealised value in equities,' Mr Kapur said. Compared with the valuation histories, the US market seems fairly valued, while Europe seems cheap and Japan even cheaper, the strategist said. Not many fund investors are as fortunate as their Hong Kong peers who are not required to pay capital gains tax and need not consider tax-saving steps when investing. The unfortunate ones can 'harvest' a tax loss by selling an investment at a loss and placing it with similar investment objectives at more attractive valuation. Alternatively, these investors can select country funds that are unlikely to pay out capital gains distributions because of the tax-loss carry-forwards, or to pay out lower distributions in the near future, according to Lipper. A recent study by the research firm indicated that closed-end country funds in the US offers good opportunities for investors seeking tax savings. A closed-end fund is a fixed pool of assets with a fixed number of outstanding shares. The market value of the shares is determined purely by market demand and will deviate from the fund's net asset value. 'While almost all country and multi-country funds are carrying net unrealised capital gains from the run-up over the past couple of years, almost 80 per cent of them still have net realised losses that have been carried over from the market slump of the prior three years,' Lipper said. Eight of the 10 funds with the biggest losses in carry-forwards are Pacific (excluding Japan) funds while those with the highest potential tax overhangs tend to be concentrated in Europe and Latin America. Given the existence of multiple closed-end country funds targeting the same country, investors can search out funds within their chosen asset classes that have similar risk and return characteristics but with wider than average discounts to net asset value along with higher than average net tax benefits.