Andreas Utermann, global chief investment officer at RCM, a specialist global equity manager within Allianz Global Investors, says that emerging market countries such as China and India are poised for a strong rebound once economic conditions have normalized.

Utermann said on a conference call last week that Asia and the emerging markets will take a dominant role in the world economy. “They [may] emerge from this crisis as new superpowers, certainly economic superpowers but also with an enhanced political clout…”

Emerging markets, as a whole, will play an increasingly larger role in the global economy in the coming years as the number of middle-class households in these countries proliferate and their local economies mature.

Utermann also expressed optimism on Germany, which has “a low private debt to GDP ratio” and continues to expand its global market share in exports. He added that most German companies are “quite well financed.”

Further, he finds much of continental Europe attractive because many of its companies haven’t relied as heavily on leverage to fuel growth like their U.S. counterparts. And some of these firms are paying out dividends at a time when many cyclical industries have collapsed making certain dividend-paying stocks attractive.

“Continental Europe has three times as many high-yielding stocks than the UK. Also, historically many continental European companies have not used leverage as extensively as US and UK companies, therefore the ability to maintain the dividend in the continent will just be higher,” he said.

Still, these opportunities could be stymied if critical liquidity issues aren’t resolved. The biggest risk to the economy is the ability of the global financial services sector to dust itself off.

“The health of the financial services industry is critical to the global economy. Without a healthy financial sector, a financial sector that is able to extend loans to the corporate sector and to private individuals, we will not get out of this funk,” he said on the call. In fact, the failure of policy makers to get financial institutions to lend will deepen the recession and potentially lead a depression. Still, Utermann is confident that policymakers will succeed and sees a deep recession as an unlikely scenario.

Another threat to a recovery would be a new era of protectionism, whereby global powers become more insular in their thinking and, as a result, discourage imports, impose tariffs on foreign goods and move to block foreign takeover of local markets. In addition, geopolitical concerns are likely to mount. “Smaller nations might be emboldened to take a more aggressive military stance,” Utermann says.

Sidestepping these roadblocks will not be easy. Government policy makers will be under tremendous pressure to restore liquidity through increased spending and regulatory reform. Reducing consumer and corporate debt is a huge obstacle and will take time to take hold. Utermann suggested that a stronger regulatory regime in the US and revised mark-to-market rules are key steps toward rebuilding confidence on the heels of the worst financial crisis since the Great Depression.

“[We believe] the news will get worse before it gets better,” Utermann says. “The dollar will continue its downward slide. It would not be a rout but clearly the dollar in three or four years will be worth much less relative to most major currencies than it is now.

“Equities in 2009 will continue to be extremely volatile,” he said. Areas he finds attractive within equities, however, include Asian and European stocks, particularly growth stocks with strong cash flows and the ability to grow dividends. He advises investors to steer clear of property and private equity in the current climate.

With respect to fixed-income, he favors long-term bonds. “We believe yield curves will steepen and corporate bonds relative to governments, particularly the longer maturities, are good value,” Utermann said.

The first green shoots of a recovery, he said, may come from the real estate sector, albeit farther out than the third quarter of 2009 RCM had anticipated. “The first signs of stabilization would need to be in the U.S. housing market particularly given the pivotal nature of U.S. house prices, repossessions and the like in the whole chain of ABS, CDOs, mortgage securities and the like.”