2012 to be a difficult year for markets, warns BofA ML

US growth expectations seemed to have stabilised, says Gary Baker, head of European equities strategy at BofA Merrill Lynch. However, he feels that Europe has chances of more material development.

Baker indicated that 2012 will be a difficult year for markets in terms of growth. He believes that high inflation is a cause of concern for emerging markets.

Here is the edited transcript of his interview. Also watch the accompanying video.

Q: How executable is the European financial stability facility (EFSF) plan?

A: The EFSF mark is still not fully functional. There is a widespread belief in markets that more needs to be done in terms of up scaling the size of it. We are in a bit of catch-22 where the market is running ahead on expectations and the reality of what politicians can deliver is lagging behind.

Q: On the subject of recapitalising banks, how likely it is that it may happen? What kind of impact would it have on equity markets?

A: Two things are responsible for the recent 10%-rally. The US growth expectations have stabilised. There have signs of movement in a collective world coming from Europe.

By the time we get to the announcements, whether it