Mumbai: Equity markets around the world continue to be soft as debt issues in some European nations and weak employment data in the US raise questions about the strength of the economic recovery. Jan Straatman, chief investment officer of Netherlands-based ING Investment Management Pvt. Ltd, spoke in an interview on the direction stocks will take this year. Edited excerpts:

With the markets jittery right now, is this part of the much feared double-dip?

Graphic: Yogesh Kumar/Mint

So our expectation for growth at the end of last year was much more subdued compared to other people, but at the same time, I don’t see a double-dip happening during the course of this year. I think growth will be quite moderate. I don’t see any immediate inflation risks (for the world).

Will the situation in Asia be different?

Yes. The big thing we are seeing playing out is much more divergence globally. Economies have been moving much in the same cycle in the past, including emerging economies, but that is changing.

From a purely markets perspective, the situation is a little bit different. You won’t have any topline (revenue) growth in the Western markets because of the economic scenario. The prospects in emerging markets are far, far better. 2010 will be a reasonably good earnings growth year. The emerging markets, at the end of the day, are the true alpha play (returns in excess of the market return), especially in the long-term.

Will money flow back to the US in the short term?

Yes, there is always that risk. Right now, with some of the issues that India and China face, there is that risk. Lots of foreign money—especially in the capital markets—is coming from the larger institutional investor. So, there is that risk with the US dollar strengthening against expectations (leading to a reversal in the carry trade).

What kind of returns are you looking at from emerging markets?

Overall for emerging markets, we are looking at 25-30% growth this year.

What are the risks to your outlook? What are the chances of another shock?

I think there are three key risks to the moderate scenario I have described.

One is the fact that policymakers on the monetary side might make a mistake in starting the tightening too early. I think the balance is too fragile. Something like that will have immediate negative repercussions on the economy and the markets.

The second risk is that governments are going to start to protect their economies, be too protectionist. That will be very negative for global markets, including emerging markets.

The third risk is that we are all now very comfortable with the situation in the financial sector. If there would be an unexpected incident—a medium sized or large financial institution (goes under)—then that would be very negative.