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International equity market review

"To be or not to be" in the market was the question that tormented equity investors as a very turbulent 2011 came to a close. The intense investment atmosphere of 2011 left a bitter taste in market participants' mouths and a spillover in 2012 was highly anticipated. However, as the year 2012 commenced, global equities took off and left investors amazed. The resilience of equity markets grew as central banks throughout the world flooded economies with liquidity, US economic data improved and most of all fears of a debt crisis in Europe subsided. The top performing markets were Venezuela's stock market index and Egypt's EGX index with returns of 70.7 per cent and 38.6 per cent respectively. The performance of equity markets within the first quarter 2012 exceeded the expectations of market players following a jittery 2011.

PERFORMANCE OF REGIONAL INDICES

Commodities performed exceptionally well in 2011 as investors lost their appeal for equities and sought protection of their wealth. As New Year resolutions reversed investors' risk tolerance, commodity prices weakened and international equities rallied. Even as oil remained elevated, the Commodity Research Bureau (CRB CMDT) Index, benchmark for 22 basic commodities, increased minimally by 3.2 per cent within the last quarter compared to the performance of global equities which increased 10.9 per cent as reflected by the performance of the MSCI World Index (See exhibit 1). Investors exchanged overvalued commodities and flocked to undervalued equities.

In the first quarter 2012, emerging markets outperformed developed markets marginally, reversing the losses of 2012. Emerging markets, as represented by the MSCI BRIC and the MSCI Asia ex Japan indices, started off the year on a positive note, posting returns of 13.5 per cent. (See Exhibit 1) Following 2011's negative performance where BRIC and Asian markets tumbled by 24.9 per cent and 19.1 per cent respectively, emerging equities started off the year on a solid path. Developed markets also witnessed improved equity performance at the beginning of 2012 .The US's S&P 500 Index buoyed the performance of the MSCI World Index gaining healthy returns of 12.0 per cent over the past quarter after a flat performance in 2011. (See Exhibit 1) The European markets were also a main contributor to developed markets' performance as the MSCI Euro Index returned 11.5 per cent in the first quarter 2012 recovering the losses of its 2011 return of -10.9 per cent. (See Exhibit 1)

PERFORMANCE OF THE US MARKETS

US equity market maintained its momentum in the 1st three months of the year as lower volatility helped to bolster investor sentiment. US Equities were boosted by positive economic data which aided investors' confidence. Real gross domestic product (GDP) increased 3.0 per cent in the fourth quarter of 2011 after increasing 1.8 per cent in the third quarter, spurred by consumer spending and manufacturing. Increased consumer spending within the 1st quarter, even as gasoline prices remain elevated, has led economists to raise forecasts for first-quarter growth. The US labour market continued to grow as new jobless claims fell sharply in recent months. Over the past six months, the US unemployment rate declined rapidly from 9.1 per cent to 8.3 per cent even as sluggish growth persists. As economic data improved, US investors risk appetite returned.

PERFORMANCE OF

THE EURO MARKETS

Europe's equity markets performed in line with its developed peers this quarter even as the euro region narrowly escaped a Greece default. Withstanding the debt crisis that heralded 2012, European investors were the top risk takers this quarter as they started buying up cheap stock at the beginning of the year. As the European Central Bank pumped billions of euros to preserve liquidity in the system and Greece's bailout of 130 billion euros was finalised, concerns about Europe's sovereign debt crisis diminished. Germany continued to be the stalwart in Europe as it was the main contributor of the EU region's growth and equity performance. European Union (EU) GDP grew at 1.5 per cent in 2011, with Germany's 3.0 per cent growth (20 per cent of EU GDP) helping to offset weakness in the United Kingdom (+0.8 per cent), Italy (+0.4 per cent), Spain (+0.7 per cent), Greece (-6.8 per cent), and Portugal (-1.6 per cent). Germany's Dax Index also outperformed its peers with overwhelming returns of 21.2 per cent for the 1st quarter 2012 followed by France's CAC 40 Index's return of 11.5 per cent. Even after a strenuous 2011, European equities still performed exceptionally.

PERFORMANCE OF

THE BRIC REGIONS

Emerging Markets regained momentum for the 1st quarter 2012 continuing its outperformance in bull markets. Investors took advantage of cheap, emerging stock as the year began resulting in Russia, Brazil and India equities earning strong returns of more than 15 per cent. (See Exhibit 2) Emerging-market stock funds took in $25.6 billion in the first quarter through March 28, the best start to a year since 2006. In the same period last year, investors pulled $23.7 billion from emerging-market funds. Russia, as the world's largest energy exporter, continues to benefit tremendously from elevated oil prices and its equities remain the top performer amongst its peers. (See Exhibit 2) Indian equities have also played a major role in emerging markets performance this quarter as foreign institutional investors inundated Indian markets reversing its weak performance last year. Brazil's equity index also managed healthy quarterly gains due to investor's overwhelming response to interest-rate cuts. However, investors seem disappointed by news emanating from China resulting in a subdued performance for the 1st quarter. Concerns that China's economic growth was being threatened coupled with China's government reduced GDP growth target for 2012 to 7.5 percent from 2011's GDP of 9.2 percent impacted poorly on China's equity market. (See Exhibit 2)

PERFORMANCE OF

THE ASIAN REGIONS

Investors flocked to Asia with renewed hope that this region's rapid economic growth would translate into strong market performance. As the year 2012 started, Asian equities were on the uptrend. Stock markets in South Korea, India and Taiwan together attracted some US$24 billion of overseas funds already for this year. Throughout the region, government's cut interest rates demonstrating their accommodative monetary stance and efforts to support companies' earnings. Thailand was the top performer in the Asian space as reflected by its Thai Index's 19.6 per cent return for the quarter. Indonesia's Jakarta Index posted returns of 7.60 per cent resulting in Indonesian equities being one of the worst performers for the quarter after outperforming its peers in 2011.

As investors, the lesson we learn from the 1st quarter 2012 performance of global equities is that there are opportunities even in bear markets.

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