December was another good month for global equities and brought an end to a very strong year of performance for global equity markets. The MSCI World Index gained 20.1% over the year in Euro terms with an 11% gain in Quarter 4 alone.
In Ireland, 2010 may not have felt like such a positive year, especially for investors focused solely on the domestic market caught in headlines of major budget cuts, European bailouts and general economic woes. The ISEQ finished flat in 2010.
Global equities were strongly supported by record company profits as growing revenue streams were backed up by rigorous cost cuttings over the past 2 years. From a macro perspective, a low interest rate and low inflation environment persisted and there are few forecasts of this changing in the near term in the developed world. A trend of dividend reinstatements/increases, share buybacks and mergers and acquisitions emerged as large levels of cash were deployed from company balance sheets. In December, it was announced that the Bush tax cuts, set to expire at the end of 2010, are to be extended into 2011, which pleased markets.
Emerging market economies performed much stronger than their developed world peers, supported by more solid fiscal foundations. Emerging equity markets outperformed also with the MSCI Emerging Markets Index rising 27.5% in 2010. Chinese news flow gave emerging markets their general direction as the long term China story remains intact. Short term tactical policies kept the economy on track also despite some fears of possible over tightening as the Chinese economy continues to grow at a very fast pace.
On the flip side, European sovereign debt problems led to European government bonds selling off heavily in the final months of the year. Overall, Eurozone bonds had a relatively flat year (for over 5 year bonds) while Eurozone equities underperformed their global peers, significantly impacted by peripheral Eurozone stock markets.
|Markets in 2010||€ Return|
|Ireland – ISEQ||0%|
|UK – FTSE All Share||+19%|
|USA – S&P 500||+23%|
|China – MSCI China||+12%|
|Europe – MSCI Europe||+12%|
|Japan – Topix||+24%|
|Pacific – FTSE World Asia Pacific||+26%|
|World – MSCI World||+20%|
|Bonds – Barclays Euro Inflation Linked||+1%|
Source – Kleinworth Benson Investors & Datastream.