THERE is a nervous and gloomy mood out there, but my list of "Ten Surprises" for 2012 has a positive tone.

The definition of a "surprise" is an investment-related event that I believe is "probable" - that is, has a better than 50 percent chance of taking place - but which the average investor would assign only a one-in-three chance. I have been doing this since 1986, and my long-term average has been reasonably on target about half the time.

1 The price of crude oil will decline to US$85 a barrel.

For the past decade, I have believed that the price of crude oil was headed higher. I started thinking that when it was US$40 per barrel because we were finding new recoverable reserves only at about the same rate as the existing wells were being depleted and the demands of the developing world were increasing substantially. I now think that the ability to extract oil from rock deposits will result in US domestic crude production exceeding last year's level - something that hasn't happened in probably 20 years.

What's more, fracking and horizontal drilling possibilities are prevalent throughout the world in places like Poland, Ukraine and China. As a result, the developed world may finally become less dependent on Middle East oil.

2 The Standard & Poor's 500 index could rise to 1,400.

The index is off to a good start, having risen to more than 1,300 before the end of January. The driving force will be improved earnings and modest valuations. I expect operating earnings for the index to be US$105, so the market was only selling at only 12 times at the beginning of the year. Usually - but not last year - it sells at 15 times at some time during the year. In addition, the overall index yields more in dividends than the 10-year US Treasury yields in interest for the first time since 1958.

3 Real gross domestic product growth in the US may exceed 3 percent.

It is almost impossible for the US economy to grow at that rate without housing providing some help, and there are finally signs that a bottoming process is underway. The vast overhang of unsold homes will prevent a sharp pick-up in housing starts, but the worst seems to be over. The unemployment rate also seems to be trending lower and could drop below 8 percent before year-end.

Federal government expenditure is running at 25 percent of gross domestic product, well above the 20 percent level of the past 60 years. This represents an enormous stimulus program. The combination of a US$1 trillion-plus fiscal deficit and the natural momentum of the economy should enable real growth to reach 3 percent for the current year.

4 US President Obama will win a second term.

This might not seem to be a surprise to some, but many of Obama's supporters four years ago are disappointed with his first-term performance. His approval ratings are low, and independent voters as well as all Republicans believe the country is headed in the wrong direction.

The economy will be the most important factor. If voters believe the economy is improving and more jobs are being created, Obama has a good chance of being re-elected. If the economy is growing at only 2 percent or less, I think he is in trouble. I believe Mitt Romney would provide the most formidable competition.

5 The European Union and the euro will remain intact.

The members of the Union have invested a great deal in its conception and implementation, and its failure would be a tragedy. The stronger countries, notably Germany, France and the Netherlands, have gained a lot in terms of trade. Some southern countries, such as Greece and Portugal, may have abused their membership by borrowing excessively, but in the overall scheme of the Eurozone, Greece and Portugal are of minor importance. Italy is a critical factor and its membership must be preserved.

There are likely to be some significant "voluntary" or involuntary defaults resulting in the write-down of the sovereign debt of several countries. The restructuring of the debt of weaker countries will threaten the continent's banking system and institutional aid will be necessary.

6 The threat posed by commercial hackers will continue.

Computer hackers in Eastern Europe and the Far East are more effective than the firewall builders working in the financial services industry in the West. They have invaded the databases of some banks and have forced several large ones to close for several days until the accuracy of internal records is determined. An adversary of the United States could inflict considerable harm by undermining confidence in the banking system. This could prove more damaging than a more violent attack, and it could be done from an offshore location.

7 The currencies of well-managed economies will appreciate.

For several years, I have recommended that investors allocate a portion of their portfolios to gold as insurance against a calamity in financial assets. I still believe in that concept, but I also believe that the currencies of countries managing their finances responsibly will appreciate. These would include the non-euro Scandinavian countries as well as Singapore and South Korea. I also think that the currencies of countries with favorable natural resources-to-population ratios, such as Australia, are likely to do well.

8 Efforts to reduce the US budget deficit may precede the election.

Most investors do not expect any significant legislative action to deal with the US budget deficit until after the November election. With the automatic spending cuts in healthcare and defense and the expiration of the Bush tax cuts scheduled for January 1, 2013, I think it is too much to expect Congress to deal with these changes in a "lame duck" session after the election. Therefore, I think a courageous president or Congressional group will take the initiative and try to reduce the deficit before the election. Some in Congress may conclude that facing the budget problem directly and taking action will impress voters who know that entitlement cuts are inevitable.

9 Syrian President Bashar al-Assad may be forced out of office.

The regime of Bashar al-Assad is likely to go the way of similar dictatorships in Libya and Egypt. An end to the Assad family's rule in Syria would be a positive for Middle East stability and would further isolate Iran.

10 Investment in emerging market equities will be rewarding.

I believe investors will be rewarded for holding the equities of the larger developing countries like Brazil, India and China. For several years, the economies of those countries have grown in excess of 5 percent, but their markets have not done well. I think that valuations have become compelling. While I think that the developing economies will slow during 2012 from their recent pace, earnings for many companies will continue to justify higher prices.

Shanghai Daily condensed the article.