Ashburton insight : A bright start
It has been a bright start to the year for global equity markets, with the world index up just over 2% in the past two weeks. Last year’s laggards, the BRIC countries, have been the fastest out of the blocks in 2012, with China and India both up over 5% in local currency terms year-to-date.
After sentiment became very depressed in late 2011, (i) some better than expected global economic data and (ii) a modest easing in European financial conditions, following the ECB’s €490bn 3-year loan to European banks, has lent support to markets in recent weeks.
Ashburton’s Multi Asset Funds have benefited from weakness in the Euro and Sterling versus the US dollar. For some months, we have expected stronger economic data in the US than in Europe to support the US dollar.
Friday’s news of sovereign credit rating downgrades by S&P across much of continental Europe, and the ongoing failure to agree the terms of Greece’s debt restructuring exercise, provide timely reminders that clouds remain on the horizon. The Euro crisis remains some way from a definitive resolution and will remain a source of uncertainty for investors, even though recent ECB action has helped the funding situation for European banks.
Suraj Sookdhew, RMB Private Bank Portfolio manager added, “ Headlines in 2011 were largely dominated by the Euro-zone sovereign debt crisis resulting in investors becoming risk averse. It therefore comes as no surprise that $6.3 trillion has been wiped off stock markets over this period. While the global economic outlook for 2012 remains uncertain, still plagued by the ongoing Euro-zone debt crisis as these nations look to refinance huge amounts of debt - we are encouraged by some better than expected manufacturing data from US and China.
Furthermore the Chinese Q4 GDP data of 8.9% lends further support to a soft landing in that region, and we forecast China to grow at around 8.2% for 2012.
Global monetary policy is also expected to remain accommodating with cash yields at multi year lows in the developed world. This coupled with reasonable growth may see a resumption of the hunt for yield in emerging markets of which South Africa would be a beneficiary. Should the risk aversion of 2011 dissipate, we could see the local equity market out-perform in 2012.”
MARKET UPDATE
| Equity Indices | Total Return | |||
| local currency | ||||
| -5d | -3mth | YTD | ||
| MSCI AC World | 1 | 4.6 | 2.3 | |
| S&P 500 | 0.9 | 7.7 | 2.6 | |
| MSCI Europe | 0.5 | 6 | 1.7 | |
| FTSE 100 | -0.2 | 5.2 | 1.2 | |
| Topix (Japan) | -0.2 | -3.1 | 0.8 | |
| MSCI China | 4.8 | 4.6 | 5.2 | |
| MSCI India | 2.4 | -4.9 | 5.2 | |
| MSCI Emerging Markets | 1.8 | 3.9 | 2.9 | |
| Bond Indices | ||||
| Citigroup Global Government | 0.7 | 1.6 | 0.2 | |
| BarCap Global Corporate | 0.8 | 2.9 | 0.8 | |
| Commodities | ||||
| SPGS Commodity Basket | -1.8 | 4.1 | 0.8 | |
| Currency (vs US$) | ||||
| Rate | ||||
| EUR Currency | 1.27 | -0.8 | -7.8 | -2.3 |
| GBP Currency | 1.53 | -1 | -2.8 | -1.5 |
| JPY Currency | 76.78 | 0.1 | 0.1 | 0.2 |
| *Except for currency performance | ||||
| Source: Bloomberg | ||||
Important macro figures out this week include:
The week ahead
It is a heavy week ahead for newsflow. Europe will again be a focus: (i) Greek debt restructuring negotiations recommence on Wednesday, meanwhile (ii) EU and IMF inspectors will assess Greek reform progress; (iii) Spain and France will issue debt on Tuesday and Thursday; (iv) S&P are also expected to downgrade the credit rating of Europe’s bailout fund, the EFSF (currently AAA).
In terms of economic data, China will publish GDP figures and other important indicators on Tuesday. In the US, industrial production (Tue), inflation, housing starts and weekly jobless claims (all Wed) will be keenly watched. In the UK, inflation (Tue), unemployment (Wed) and retail sales (Fri) are the main data releases. Interest rate decisions are expected this week in Canada (Tue), Brazil (Wed), South Africa (Thu) and Mexico (Fri). Of these, only the Central Bank of Brazil is expected to change rates (expected to cut by 50bps).
