European policy errors and inaction is the single largest source of systemic risk for 2012, Russell Investments has warned.

The financial service firm also highlighted the fact that global deleveraging will most likely continue this year. Russell Investments global chief investment officer Peter Gunning commented that “it took three decades for the developed economies to borrow too much money and it will take years to pay it back.” In addition, he highlighted that market volatility levels and the European sovereign debt crisis will continue to cause a number of issues for investors and European businesses.

In order to combat this situation, investors will have to pay considerable attention to their investment strategies and Russell Investments has emphasised the importance that alternatives will play in enhancing investment returns.

Gunning said: “Every basis point will be hard fought. We believe regional diversification will need to be firmly in place, as the economic centre of gravity will continue to shift eastward because of China and emerging markets.

“We believe that making gains this year will require an active, global, multi-strategy approach and identifying outperforming managers in every sector and region will count more than ever. A dynamic approach to investing to take advantage of opportunities as they present themselves will increasingly become the norm for successful investors.”

Russell Investments also believes that China and the US will both have a huge impact on GDP growth particularly as China has started to ease its policy settings.

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