Persistent fears about the eurozone's future and an increasingly subdued global economy will restrain further advances for the world's major stock markets, according to Reuters polls of analysts, who slashed their forecasts.
Equity strategists were badly wrong-footed by last year's disastrous showing for global stocks. Analysts overestimated gains in all but one of the survey's 19 stock indexes, underestimating the Dow Jones Industrial Average.
Following a dire 2011 that wiped trillions of dollars from global bourses, hopes were high among equity strategists - ever optimistic - that this year would bring a strong rebound.
That has failed to materialise. And even though analysts expect all but one of the 20 stock indexes featured in the poll to end 2012 higher than their current levels, they scaled back their forecasts from the last survey in March.
A few indexes are expected to recoup the heavy losses suffered last year by the end of this December.
But for many of the forecasts collected around the globe, the case for rallying shares is paradoxically based on a belief that the quagmire Europe finds itself in, and a deteriorating global economy, will trigger another flood of central bank cash.
"The euro zone crisis continues to cast a shadow on global markets, but stocks are supported by interest rate tailwinds and ... the Fed's willingness to undertake further easing measures," said John Praveen, chief investment strategist at Prudential International Investment Advisers in Newark.
Central bank balance sheets have ballooned to $9 trillion since the onset of the global financial crisis and there is no sign of any halt to the river of cash being pumped into banks. That has propped up stock markets, despite all the economic gloom.
Indeed, only Italian shares are expected to end the year below their current levels. By contrast, strategists predict that Brazil's Bovespa will have the best performance of any major world index, rising 24 percent by year-end.
That prediction comes despite a sharp economic slowdown.
But respondents also warned there is plenty that could snuff out an expected rally, with the euro zone's sovereign debt crisis chief among their concerns.
"The euro crisis is a long and tough process that will not dissolve in the short term. It remains an uphill struggle," said Markus Reinwand, analyst at Helaba in Frankfurt.
European Union leaders are meeting on Thursday to talk over how they can solve the debt crisis, which has spread from Greece to much bigger economies like Spain and Italy.
But with discord between European politicians running high, hopes for progress are slim, and the crisis was cited as a depressant for shares by analysts from Shanghai to New York, where stocks are still expected to gain modestly.
For most of the indexes, the current 12-month forward price-to-earnings ratio is lower than their 10-year average, suggesting stocks are relatively cheap. That is one key reason why many analysts foresee gains despite big economic worries.
As in previous polls, emerging markets are expected to lead the way, although some developed market indexes look set for hearty returns over the next 12 months.
The US Dow Jones Industrial Average, Canada's S&P TSX, the pan-European DJ Euro Stoxx and Germany's DAX 30 are among those that could rise by double digits over the next 12 months.
Japan's Nikkei average will gain 20 percent this year, its biggest rise since 2005, with investors pinning their hopes on more policies to tackle the euro zone debt crisis and strong earnings to entice foreign investors back to Japanese stocks.
Emerging market indexes as a group are expected to gain an average 13.5 percent for this year, compared with 14.6 percent in March's poll.
While Brazilian shares are expected to lead the way, India's BSE Sensex could rise by a fifth over the next 12 months, and likewise for the Shanghai Stock Exchange Composite Index. Again, the predictions come despite substantial economic slowdowns in these economies.
But much depends on the euro zone.
"At some point the authorities in Europe are going to have to act to avoid a collapse," said Luciano Rostagno, chief strategist at WestLB bank in Brazil.
The S&P 500, which features many of the world's biggest corporations, is expected to end 2012 about 5 percent higher from Wednesday's closing level of 1,331.85, representing a rally of 11 percent for the year.
Most European indexes are expected to perform similarly, although the timing of any rally from here is uncertain.
"There's a lot of emotional pessimism in the market and it's very difficult to identify exactly which week, month or quarter that is going to change," said Darren Winder, head of strategy at Oriel Securities, on Britain's FTSE 100.
"But the stock market does not reflect underlying profitability - it hugely underestimates it."
Italian equities, hit hard by the euro zone debt crisis and poor economic prospects, lagged behind every other major stock index in the poll.
Already 12 percent in the red for this year, they are expected to decline another percentage point from now until the end of December.
And that forecast does not capture the tumultuous times the index may endure in the interim.
"We are tightly tied to the future of the euro," said Giorgio Mascherone, investment head at Deutsche Bank Italy.
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