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If you've been investing in developed markets' stocks, give yourself a pat on the back. Your equity returns are already on the brink of beating analysts' full-year targets. And it's not even the middle of February.

For example, the S&P 500 index is already 95 per cent of the way to gaining 5.36 per cent -- the magic number that came out of a Reuters poll in December as the consensus forecast gain for 2011. Similarly, France's CAC has 73 percent of its expected annual gain in hand; Germany's DAX 60 percent and Britain's FTSE 30 percent.

How could "the experts" get it so wrong? A couple of interesting pieces on forecasting stock market returns are worth a read this morning.

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The first, by Validea Capital's John Reese, points out that historically, strong economic growth does not augur well for the stock market and is, in any case, almost impossible to call correctly. (So why does the market always have a knee-jerk reaction to disappointing economic data?) You can read the entire piece here: Want a winning investment? Avoid forecasts

The second is an analysis by Jeremy Gaunt, Reuters' European investment correspondent. He points out that MSCI's developed world stock index is up 4.3 percent for the year. If that keeps up, it would mark a compounded gain of around 45 percent for the year, easily the largest annual gain in the index's 23-year history.

"This market behaviour means one of two things is likely to to happen -- either the strategists' projections are spectacularly wrong and a record-breaking year is in the making, or some form of correction, at least in pace, is ahead," he writes.

There's no reason to believe investors are nervous, he says -- Reuters asset allocation polls at the end of January showed solid overweight positions in equities, with exposure growing. Fund tracker EPFR Global's latest report, meanwhile, showed developed market funds taking in money for the seventh week in the past eight.

And it is at this point, typically, that major institutional investors may well consider paring back the riskier components of their portfolios, locking in their gains. That could take some of the wind out of the markets' sails.

Also on the radar are disappointing corporate earnings reports, mainly in Europe but also on Wall Street, which could undermine one of the biggest drivers behind the rally.

And don't forget about emerging market stocks. While flows have clearly favoured developed markets this year, some firms, such as Goldman Sachs, expect fund flows to turn back to emerging markets later in the year. It's a zero-sum game that could also hobble developed market returns.

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