Market Review – April 2009

April saw a continued rally in equity markets from their lows in early March 2009. The MSCI World Index rose by 11.5% as investor sentiment turned positive.

There have been some early signs that economies are approaching the bottom of the economic cycle, especially in the US, where there are signs that the housing market may be close to a bottom.

China reported a return to relatively strong growth in Q1 2009, after a disappointing end to 2008. In addition, global financial conditions have eased slightly since March.

Emerging markets performed best through the month, with the Chinese market rallying to its highest level since the Beijing Olympics. The overall MSCI Emerging Markets Index was up 16.9% in Euro terms for April. The S&P posted a 9.8% gain and the MSCI EMU Index gained 16.2%.

It must still be noted however that analysts are not forecasting the end of the recession at this point. Further poor news flow and company earnings downgrades will come through in the comings weeks and months. Evidence of this can be seen in the poor economic outlook given by Bank of America for the remainder of 2009.

Towards the end of the month, markets watched anxiously as the US authorities “stress tested” the 19 largest US banks. Further capital injections will be needed in some of the main US banks post the Federal Reserve’s investigations. The stress tests are calculating the likelihood of further credit loses in each bank should the recession last longer and be more severe than expected.

If the weak economic backdrop isn’t enough to occupy investors’ minds, swine flu emerged in Mexico and began to spread to other regions at the end of April. Markets have reacted cautiously to the news to date and will need to see a peak in the number of reported cases in the virus before markets can fully price in its impact.

Eco investment themes experienced strong gains in April. Alternative energy, water and climate change strategies benefited from the positive general sentiment, as well as steps in the US to boost the flow of credit to these sectors.

Source – KBC Asset Management

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