Deleveraging and central bank action should shape up as key themes for international markets in the coming year, according to a new UBS Wealth Management Americas 2012 outlook report titled “Investing at the Crossroads.”

“I’ve never seen an environment where the wisdom of policy choices or the will of political leaders has had such a profound effect,” UBS Chief Investment Strategist Mike Ryan said during the report’s presentation in New York on Thursday night. “We’re at a crossroads,” he said.

The deleveraging story will mostly affect financial institutions and the public sector, while consumers—still facing high debt burdens—may actually re-engage, Ryan said.

Financial institutions are expected to face a continued balance sheet readjustment process. The efforts to delever financial institutions and balance sheets will contribute to an expected recession in the Eurozone, Ryan said.

In the public sector, the United States will likely delay fiscal consolidation until after the November election. Europe will have to face its deficit pressures sooner, Ryan said, while deleveraging altogether should “continue to be a structural drag on growth.”

For the first time since 2008, Ryan said, central banks are expected to move in the same direction, expanding policy and cutting rates.

In the U.S., interest rates will stay low “for as long as we need,” Ryan said. While there is a chance the Federal Reserve may institute a third quantitative easing program, or QE3, UBS is predicting it will not happen.

“We think that the U.S. can continue to muddle through this period of economic stress without falling into a recession,” Ryan said.

Another major development in 2012 will be the leadership transitions expected to take place in countries including the U.S., China, Russia, India, France, Iran and Korea. Altogether, those countries account for almost half of the global GDP and their transitions will likely influence future policy and growth, Ryan said.

For investments, UBS’s outlook is entering the year underweight in equities and commodities and overweight in cash and fixed income. Investments in emerging markets should be more attractive in the coming year with central bank easing and declines in inflation, UBS predicts.

For the New Year, UBS’s investment strategy focuses on both growth and income. For dividends, that includes companies with strong balance sheets in areas like consumer staples, health care and technology.

With volatility likely to continue into 2012, investors will need to be tactical, Ryan said. “There will be times when markets will become overwrought, there will be times when they become overbought and there will be times when they become oversold,” he said. “We need to figure out when it is that the market’s presenting opportunities for us.”

Lorie Konish writes for On Wall Street.