Credit Suisse analysts predict a positive year for stock market returns in 2008, although a weak U.S. economy will slow global growth.

“Next year, the world’s economy will first of all be faced with a clear slowdown in the pace of U.S. economic activity. Developing economies in particular will be put to a ‘decoupling test’. Though these markets are not totally immune to a U.S. slowdown, strong domestic economies are likely to cushion the effects of weaker growth in the U.S.,” the firm says.

Credit Suisse also expects Europe to experience more moderate growth than in 2007. According to the bank’s experts, a more conservative rate of growth is likely to dampen acute risks of rising prices against the backdrop of a latent inflation risk.

Global equity markets are likely to remain attractive in the long term, though heightened volatility can be expected, its analysts say. Credit Suisse’s equity strategists expect positive stock market returns for 2008, though persistent uncertainties regarding the tight situation in credit markets and U.S. consumer spending are likely to ensure increased volatility in prices, it notes.

“Over a 12-month view, our preferred regions are Europe, Asia, and selected emerging markets. In the latter case, we favour markets with specific drivers: the Chinese stocks listed in Hong Kong are benefiting from ample inflow of liquidity from Chinese private investors, while the Gulf states and Russia are beneficiaries of the persistently high oil price; meanwhile, Brazil is attractive due to strong growth in its exports to Asia,” it says.

“Within Europe, restructuring plans and recovering consumer demand offer sustained upside potential for Germany; the effects of this will also be supportive to markets in France and Switzerland,” it adds.

Credit Suisse analysts continue to advise investors to invest in selected megatrends that are likely to play an important role in the medium term. Infrastructure, water, and alternative energy sources are still perceived as offering major potential thanks to global trends.

On the fixed-income side, Credit Suisse says that with central banks weighing growth slowdown against rising prices, the trend toward a steeper yield curve — that is, a generally higher term premium — is likely to characterize much of 2008 on bond markets. “Short to medium-dated maturities still appear appropriate in light of the rather low general level of interest rates. Inflation-protected bonds, which benefit from falling real interest rates and rising inflation, should continue to perform positively and actively contribute to the enhancement of diversified portfolio returns,” it adds. On the corporate side, it’s focusing on high-grade issuers.

It also sees commodities heading higher in the coming year. “The onset of the U.S. mortgage crisis heralded a significant change in the fundamental outlook for commodities. The dollar’s subsequent weakness together with cuts in U.S. interest rates have propelled prices of many commodities to new highs,” it says. “This situation is likely to ensure commodity prices to go on rising in 2008, especially with the world economy likely to continue growing at a moderate pace.

“Nevertheless, in light of economic uncertainties in the U.S., investors will need to get used to the idea of more substantial fluctuations in prices for individual commodities and higher volatility in overall terms,” it adds. “In these circumstances, investing in commodity indices would appear an increasingly attractive option. In terms of individual commodities, it is gold and agricultural commodities that are likely to offer the greatest potential gains.”

Www.credit-suisse.com