Feeble growth levels conceal the market's real potential

On the whole, 2009 is likely to be remembered as an extremely good year for risky assets, with equities as well as corporate bond markets posting stellar performance, albeit not without considerable volatility.

The question now is whether the positive momentum will remain as strong in 2010. Four key factors have driven the market rally this year: improvements in the macro-economic picture, improving corporate profits, attractive valuations and ample liquidity. Which of these factors will be as constructive in 2010? Liquidity is likely to remain supportive largely because monetary policy is expected to remain accommodative well into 2010. That said, there is more uncertainty regarding the other three factors. From a macro-economic perspective, there is no doubt a recovery is underway, bu...