By Koo Jae-sang

In 2012, the Korean stock market is likely to remain highly volatile. Europe is still kicking the can without finding pragmatic solutions. The coming February will be a stressful time for PIIGS (Portugal, Italy, Ireland, Greece and Spain) countries, especially Italy, as their bonds come to maturity. The debt maturity would be a factor in heightening the volatility in the market.

In the second half of 2012, however, as counter cyclical policies take effect in Europe and the U.S., the economic recovery will surface, beginning in Asia.

The U.S. would show a relatively sound economy with the growth rate at 1.5 to 2 percent. China is expected to grow 8 percent, slower than in previous years, but when the country’s policy to boost domestic consumption takes effect, it could lead steady growth in Asia.

The stock market is likely to bounce back in the second half of next year after falling in the first half. This means the bearish market of the first half could offer opportunities to mutual fund investors.

Next year's global economic growth is likely to stay near 3 percent due to the ongoing global economic downturn. However, the Korean stock market is holding up better than others as corporate earnings are growing faster than world economic growth.

We need to take interest in Korean companies with stable, sustainable growth based on their global competitiveness in the long-term while being aware of the global economic situation. KOSPI is anticipated to show a similar growth rate to those of individual Korean companies.

Due to macro uncertainties and the global slowdown, cyclical sectors and domestic consumption-related stocks have concerns over earnings visibility and growth. Instead, the following firms seem to be promising: companies which can achieve sustainable growth with unique positioning; companies which can achieve increase in market share leading to earnings growth; and multinational companies which have room for further growth due to their entry into emerging markets.

From a long-term perspective, these companies’ value will grow sustainably as they could weather an economic downturn and have significant growth potential down the road.

Under such circumstances, investors may need to lower their target return on investment. Interest rates are likely to remain low for a considerable length of time, judging by government and household debts and sluggish demands caused by the stagnation in Europe.

The appropriate approach for achieving target return amid an era of low-interest rate will be diversifying the portfolio by putting capital into various kinds of assets, including equity funds during a market correction, exchange traded funds (ETFs) involving stellar companies, hedge funds that pursue stable profits, real estate and bonds-based funds.

Koo Jae-sang is the CEO of Mirae Asset Global Investments.