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Categorized | Capital Markets, Equities

Strong first quarter for global markets

Posted on March 30, 2012

Global financial markets closed out a buoyant first quarter on Friday, with some indices enjoying their biggest rally since 2009.

The FTSE World index has climbed more than 11 per cent since January 1, its best quarterly performance since September 2010 and the best start to the year since 1998. “People realised they were pricing in Armageddon last year, and risk aversion has now been reversed,” Bob Doll, chief equity strategist at BlackRock, the world’s largest asset manager, told the FT.

Click to enlarge

The US market has been led by strong gains for banks and technology stocks, with the 50 per cent surge in Apple’s shares alone accounting for 15 per cent of the S&P’s 11.6 per cent rise. By contrast the blue-chip Dow Jones Industrial Average, whose more defensive constituent stocks pay higher dividends, finished the quarter up 7.5 per cent.

Asian stocks have also benefited from the return of global risk appetite. The MSCI Asia Pacific index has risen 13.5 per cent since the start of the year. Japanese stocks have been the top performers in the region, with the Nikkei 225 up 19.3 per cent as exporters benefited from the weakening of the yen against the dollar.

Many of this year’s best performing assets
– European bank shares, junk bonds, volatile emerging market currencies and peripheral eurozone government bonds –
had been pummelled in the second half of 2011.

The UK’s FTSE 100 index, however, has is only up a modest 3.7 per cent this year. In contrast, Greece’s stock market has gained more than 7 per cent – after shedding over 60 per cent in 2011.

“It’s been a fantastic quarter, especially for assets that fell out of favour last year,” said Ashish Shah, head of global credit investments at AllianceBernstein.

Nonetheless, many fund managers and bankers caution that the strong performance of the first quarter of the year is unlikely to be replicated. “We often get rallies at the start of the year, and it’s not plain sailing from here, particularly in Europe,” said William Davies, head of global equities at Threadneedle. “There are definitely potholes in the road forward.”

Lex chart

The sustainability of Greece’s debt restructuring remains uncertain, and investors have become increasingly concerned by Spain’s budget deficit slippage. The Spanish Ibex is the only major index to have dropped in the first quarter.

Norway’s sovereign wealth fund – one of the world’s largest investors owning over 1 per cent of global equities and 2 per cent of all European equities – is set to cut its exposure to Europe and increase it in emerging economies.

Mr Doll expects global stock markets to end the year higher, but warned that it could be a rocky trajectory: “We’ve come a long way in a short period, so a pause now would be natural. There are still a lot of things to be concerned about.”