Fund managers are bullish on the prospects for equities and emerging markets in 2011, but have bearish views on government bonds, a survey of 141 fund managers at the end of 2010 by Towers Watson found.

The managers expect the economy to grow in the coming year and to avoid a double dip recession due to low central bank rates and mild inflation. While they see unemployment as a major challenge for developed economies, they do expect it to improve in the coming year.

Nonetheless, they expect equity returns over the next decade to be lower than the historical average. Further, they expect returns in 2011 to vary widely by market and for there to be more volatility than in 2010. Overall, the expect the markets to deliver 10% in the coming year and for the U.S. market to rise 10%.

“This influential group of investment managers indicates that we continue on the path to recovery, but that it will be volatile and patchy depending on the market,” said Carl Hess, global head of investment at Towers Watson. “Established Western markets will continue to lag the emerging markets on most measures, with the Eurozone and Japan expected to have the worst headwinds, in contrast to continuing rapid growth in China and other developing markets.”

The fund managers also expect investors to be more amenable to risk in 2011, and they themselves are more bullish about risky assets. “A further indication of optimism is the view that all economies are expected to have moderate growth in 2011 as well as during the next 10 years, supported by loose central bank monetary policies,” Hess said. “The notable exception to moderate growth is China, where real GDP growth is expected to be around 9% this year, falling to 7.5% during the next 10.”