Global equity markets continued in their positive vein in August but with varying overall returns for regional markets. The MSCI World Index rose by 2.9% in euro terms, driven by signs that the recessions in major developed countries are at, or drawing near to, their end. Emerging markets underperformed the developed economies and endured a rough month in Euro return terms, with China down over 8%.
During the month, investors moved their focus to macro data and forecasts for 2010. In the developed world, the US appears to be at the exit door of the recession (see below). Key indicators show a strong rebound in consumer confidence and house prices with upgrades in GDP forecasts coming through earlier than expected also.
It is now forecast that the US economy could expand by up to an annualised 3% rate in Q3 2009.
At company level, 75% of company earnings reported for Q2 2009 beat analysts’ expectations, driven primarily by aggressive cost cutting programs. However, it has been reiterated many times that the recovery out of the recession will be a slow one, and not a strong rebound to pre-crisis growth levels.
Closer to home, Germany and France are now officially out of recession, though the European Union economy as a whole is still technically contracting.
The US announced the reappointment of Ben Bernanke as head of the US Federal Reserve. This, along with the reiteration that US interest rates will remain at very low levels for the foreseeable future, buoyed the market.
In Europe however a more aggressive stance is being taken, with the prospect of interest rate rises as soon as early 2010 now a possibility, due to the recovery in the larger member states.
Emerging markets which had rallied strongly up to August underperformed the wider market with China being the notable underperformer. The nervousness in Chinese markets arose from concerns – probably unfounded – that the authorities there may soon decide that measures to help the economy are no longer necessary.
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Source – KBC Asset Management & Irish Life Investment Managers.