In the final few weeks of 2010, the focus of investors has turned to the year ahead and the opportunities it may bring. Will this year's wild market swings continue into 2011? Ask strategists or analysts and they will come up with various permutations. One thing is certain and that is the whole investment community will be watching how the biggest economy in the world, the United States, and the second biggest, China, fare. According to news reports, the United States Federal Reserve has become more pessimistic in its outlook for the US economy and has lowered its growth projection. The latest forecast shows the economy will grow by only 2.4 per cent to 2.5 per cent this year. That's down sharply from a previous projection of 3 per cent to 3.5 per cent. Next year, the Fed forecasts the economy to expand by 3 per cent to 3.6 per cent, also much lower than its June forecast. China is expected to continue leading the world in growth and, according to the Organisation for Economic Co-operation and Development (OECD), its continued buoyancy is projected to be maintained next year. 'With the impact of the stimulus plan fading, China's vigorous expansion slowed during the first half of 2010, but has picked up somewhat since then. This renewed buoyancy is projected to continue in 2011-12, as faster domestic demand offsets a renewed slowdown in exports, stabilising the current account surplus at around 51/2per cent of GDP. An acceleration in non-food prices is expected to be offset by an easing in food-price inflation, resulting in a stabilisation of inflation at slightly above 3 per cent,' the OECD report says. Given this uncertain scenario, what are the options and what are the indicative signs of a turnaround in global equity markets and economies? According to Pranay Gupta, chief investment officer, Asia-Pacific, at ING Investment Management, next year will be characterised by risk and volatility as the world finishes one economic cycle, but has yet to begin another. 'Seldom in financial markets do you see an inflection point in market cycles in all three duration bands - short, medium and long-term - at the same time,' Gupta says. 'This fundamental shift in market dynamics leads to a series of asset inflations and deflations as the markets seek to find equilibrium, and the shift also creates excessive volatility. 'We don't know when the new economic cycle will start, or what it will look like. Until then we are in a no-man's land, and waiting for concrete signs of stability.' In the short-term, Gupta believes there will be low global economic growth, mostly low global interest rates but, most importantly, higher volatility. 'During volatile periods, the correlation between all asset classes and securities also increases, creating an environment where the primary driver for returns will be themes which can weather the storm of fluctuating economic cycles,' he says. James Swanson, chief investment strategist at MFS Investment Management, reasons that the global economy has been through a two-year period in which correlations among different issues and types of issues have been very high. 'This period has not been the best for a stock- or bond-picking cycle. 'Now, correlations have been falling and this suggests that the market is moving back towards quality and issue selection. We hope this trend continues. 'It might mean, that in the long-run, companies with good return on equity, good return on investment capital and good, consistent cash flows will win out over companies with lower-quality metrics,' he says. Additionally, strategists say US policies designed to attack persistent unemployment will create hot money flows into assets that have better yield or growth prospects, and putting pressure on Asian currencies to appreciate against the greenback. 'Having learned from the Asian financial crisis, Asian countries are wary of disrupting local economies, so we could expect moderate protectionist measures,' Gupta says. 'However, these measures can only be partially effective, so we can expect to see a surge of money coming to assets such as property, equity markets and IPOs [initial public offerings].' Last week, US government data showed that the number of people claiming unemployment benefits decreased significantly, which buoyed stocks on Wall Street. The US unemployment rate is the most watched indicator of economic health. Although the savings rate is expected to increase, and the propensity to borrow expected to decrease, without a revival in the employment numbers, the consumer sector will continue to be a drag on the US economy. This negative consumer sentiment in turn will not help growth in the manufacturing sector, leading to a vicious cycle of negativity in the medium-term. 'If the US is successful in their policy measures, then at least the medium-term cycle has bottomed and a new cycle can begin,' Gupta says. 'However, if these do not prove to be as successful as they would hope, then other measures, such as disguised protectionist measures and unorthodox fiscal policy, cannot be ruled out as instruments the policy makers will use to achieve this same aim.'