Kevin Gardiner, head of EMEA investment strategy, comments: "While impossible to predict how these themes will play out on a month-by-month basis, we are focused on the longer-term implications for portfolios in a scenario in which the euro area, its banks and the global economy face neither disaster nor triumph, but something in between.  In our view, this is still the most likely outcome."
 
Barclays Wealth's investment recommendations for the next three to five years are as follows:
• Allocate more to developed and EM equities
• Reduce exposure to government bonds
• Increase allocation to high yield and EM bonds
 
Compass drills down into the three key constituents of today's global economy:
 
Consumer vital signs
In many respects, the consumer has carried the weight of the global economy on its shoulders for some time. Despite being buffeted by the extreme volatility of 2011, consumers in two of the three large trading blocs are in healthy or improving shape, providing a reasonable outlook for global growth in 2012. Economies will go in large part where the consumer points, which is why Barclays Wealth has raised its long-term exposure to developing economies.
 
Government bonds
The sovereign debt crisis may not be the main threat to the market value of government bonds held in investor portfolios. In a “muddle through” scenario for euro area and US fiscal policy, it may be a combination of the US business cycle and rich valuations that causes bond investors most concern in the year ahead.
 
Companies are in good health
Right now companies seem to be in better financial shape than governments. If the global economy continues to grow in 2012, and governments leave them alone, Barclays Wealth believes their profitability and balance sheets will remain solid.  However this doesn't seem to be reflected in current stock market valuations.
 
It's always darkest before the dawn
Investors are understandably hesitant about investing in risky assets right now and are instead focused on the risk of economic conditions deteriorating even further. However, it's not just about the risk of being in the market; investors also need to think about the risk of being out. Attempts to fine-tune private portfolios in the face of market volatility can result in investors missing out on some important moves.