Financial insights come from the most unlikely places. Many Toronto taxi drivers have a keen understanding of public opinion and retail sales clerks are a great source of the latest consumer spending habits.

Here’s a quote from the Dalai Lama: “Once you have been bitten by a snake, you are very cautious of even a coiled rope.”

I suspect the spiritual leader of Tibetan Buddhism was referring to Pan-Asian politics, but I think this metaphor neatly captures the investment climate in these early days of 2012.

Investors are in a cautious mood. The subprime mortgage credit crisis of 2008 was a blow to  market confidence and, despite healthy returns in 2009 and 2010, a weak year like 2011 has left everyone winded. Many pundits and forecasters expect the year ahead will look a lot like the year behind us: slow economic growth, political deadlock, debt fears and weak equities returns.

I disagree with this negative perspective. Instead, I follow Sir John Templeton’s time-tested advice and invest at “the point of maximum pessimism.” Those who play it safe in 2012 will miss out on strong returns. The ingredients are in place for a new secular bull market. I urge advisors to be opportunistic, re-think equities weightings and rebalance portfolios accordingly this RRSP season, especially in foreign equities. The snakes of 2012 are hibernating and that coiled rope is just a coiled rope.

The U.S. was the welcome surprise in 2011 equities markets — the S&P 500 composite index returned 2.1% in U.S. dollar terms and a dip in the value of the loonie doubled returns for Canadians. This trend will continue. Corporate America is cash rich, retail spending is up, consumer confidence is improving, gas prices are falling and businesses are restocking shelves. 

The shrill headlines of recent months suggest Europe is poised to disappear. Rest assured, Europe will survive and will muddle through its debt crisis.

I expect a successful resolution to Europe’s problems in the first half of 2012 will drive equities markets higher this year, especially the depressed shares of European-based companies with a track record of strong global earnings.

I am most upbeat about emerging markets. Collectively, they shrugged off the 2008-09 slowdown, and debt-to-gross domestic product levels are a fraction of those of the world’s mature economies. A fast-growing middle class is driving corporate growth and, by extension, share prices. China’s economy may cool but will still record 8%-9% growth this year.

Here’s the big question: If, indeed, equities are poised for a return, what’s the best asset allocation? Research tells us that the bulk of Canadians have a home equities bias and are overweight Canadian stocks and fixed-income.

The Canadian equities market has been a great bet in recent years in relation to global markets. But the easy money has been made and a strong loonie means foreign markets are on sale. I urge investors to increase exposure to foreign markets at the expense of Canada. Global diversification will mitigate portfolio risk, too. Three sectors — financial services, energy and materials — continue to dominate the Canadian equities landscape. IE

Don Reed is president and CEO of Toronto-based Franklin Tem-pleton Investments Corp.