Market Review – Q1 2010

World equities enjoyed a very strong end to the first quarter with the MSCI World Index gaining 7.2% in March (in Euro terms). The index finished March 2010 at its highest points since June 2008. The market has now rallied by almost 70% since its low point over a year ago.

Early in the month markets progressed strongly albeit with little positive news flow. The unclear backdrop with Greek debt problems and noise around potential rate rises was dismissed by investors. The market took a short midmonth pause when investors considered developed world governments’ future struggles to fund swelling deficits when Portugal’s debt was downgraded and weaker than forecast demand for a US bond issuance concerned the market.

The positive momentum returned quickly however as investors showed an strong appetite for risk assets. Month end data pointed to stronger manufacturing figures leading the economic recovery in the US. US house sales were again weak. However, analysts were upbeat after improving manufacturing employment announcements which should have the knock on effect on the all important labour market and consumer confidence leading to an eventual recovery in the housing market. US initial jobless claims fell to their lowest level in six weeks as the rebound in the economy seems to be encouraging companies to make fewer cuts in payrolls.

Indicators also suggested that European economic confidence is improving and is now at its highest level since mid 2008. At month end investors were looking at the potential of the global recovery turning into an outright expansion. In emerging markets signs of economic growth from China, Japan and South Korea added to investor optimism that the global recovery is strengthening.

Markets took further comfort as France and Germany backed a Greek aid proposal. France bowed to Germany’s demand for an IMF role in a potential rescue package for Greece and thereby adding a feeling of stability to the market. Also in the sovereign debt space the cost to protect Dubai’s debt against default plunged after the emirate committed $9.5 billion to Dubai World’s restructuring.

Ireland’s ‘bad bank’, NAMA, announced that it will apply an average discount of 47% on the first block of loans it is to buy from Irish banks and the financial regulator set new, higher capital targets for the banks. 

Oil ended the month above $82 per barrel, recording its fifth consecutive quarterly gain as recovering demand outweighed ample supply.

Source: KBC Asset Management

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