February was another extremely weak month for equity markets. More astonishing losses were reported by the banking sector, which again received massive capital injections from governments. This, combined with worsening sentiment as the month progressed, led to an MSCI World Index return of -9.4%.
Since October 2008, equity markets have been volatile on a daily basis but have traded within a defined range with the S&P 500 ranging from 750 –900. However, the bottom of this range was severely tested in the final days of February, with the index finishing the month at 749, below the previous lows experienced in November.
During the month, President Obama marginally won a crucial victory in getting a $787 billion economic stimulus plan voted through Congress. The markets reaction to the final plan was muted but overall was seen as a step in the right direction. The stimulus package reiterated the US’s commitment to alternative energy and carbon emission reductions into the future.
Central banks continued their monetary stimulus efforts in February with the Bank of England cutting their base rate to 1%. The ECB held rates in February but a cut of 0.5% is widely expected in the coming weeks with the single currency economy in a continuing decline.
Reported export figures globally are extremely weak, and a direct indication of the weakness in the global economy. Japan reported a 45% fall off in exports in January, while annualised GDP fell by 12%.
German GDP fell by 2.1% in Q4 2008, a record level since unification in 1990, driven by a large fall off in exports from Germany.
Central and Eastern European markets fell heavily during the month, due to current account deficits, consumer debt levels and local borrowings in Swiss, Franc and Euro being hit by adverse currency movements. Latvia’s government bonds fell to junk bond status.
Source – KBC Asset Management