Download Global Equities Continue Decline in First Quarter

Market Update
April 2009
``Government policymakers
seem to be trying everything
in their power to boost the
recovery of the banking system
and mortgage markets, despite
the potential consequences.’’
Global Equities Continue Decline in First Quarter
The global equity market, as measured by the MSCI World Index, declined
11.78% during the first quarter. Government policymakers seem to be trying
everything in their power to boost the recovery of the banking system and
mortgage markets, despite the potential consequences. Rising unemployment,
slumping gross domestic product and falling home prices remain chief concerns.
Prices still indicate expectations of low or no growth for a number of years, which
we feel is an improbable outcome.
First Quarter Global Equity Markets Returns (as of 3/31/09)
4%
1.02
0%
-4%
-8%
-12%
-16%
-11.78
-11.01
-12.72
-14.45
MSCI World
Index
United States
(S&P 500 Index)
MSCI Europe
Index
MSCI Pacific
Index
MSCI Emerging
Markets Index
Source: MSCI Barra, MellonAnalytical Solutions, LLC
United States
The opinions referenced are as of the date of publication and
are subject to change due to changes in the market or economic
conditions and may not necessarily come to pass. Information
contained herein is for informational purposes only and should not
be considered investment advice.
Past performance is no guarantee of future
results. Current performance may be lower
or higher than the performance quoted.
The U.S. equity market staged an impressive rebound during March (8.76% S&P
500 Index return), but it wasn’t enough to save what ended up as a challenging
and volatile 3-month period for investors. In the first quarter, the broad market
as represented by the S&P 500 Index fell 11.01%. The year began with a thud
as the index suffered its worst January performance ever (-8.43%) followed by a
10.61% loss in February. The collapse was largely due to the declining economy,
weak corporate earnings, the dismantling of the U.S. auto industry and ambiguity
over various fiscal and monetary stimulus plans. Some positive signs emerged as
the quarter came to a close including clarification on mark-to-market accounting
rules, Federal Reserve efforts to lower mortgage rates, Treasury’s plan to rid bank
balance sheets of toxic assets and signs of renewed credit market activity. Much
debate remains as to whether this recent surge in asset prices is the beginning of
a sustained move upwards or merely a rally in a deep bear market.
Europe
Currency
Almost all European equity markets posted negative returns
despite the March rally. Norway (3.25% return) was the one
exception and far outperformed the rest of its European
counterparts. There were multiple key interest rate cuts by the
Bank of England and the European Central Bank that led to new
historic lows of 1.5% and 0.5%, respectively, as they try to free
up capital markets and boost growth. With the U.K. economy
in recession, its equity market declined 10.68% for the quarter.
Germany decreased 19.44% as the country was hard hit by the
continued global credit crisis as well as falling demand from its
trading partners. The worst performers within the region were
Finland (-21.91%) and Italy (-20.58%).
The DXY dollar index, which measures the performance of the U.S.
dollar versus a basket of six major world currencies, advanced from
81.3 to 85.4. The euro and the pound both depreciated versus the
U.S. dollar during the quarter by 5.16% and 1.85%, respectively.
Additionally, the U.S. dollar appreciated against the Japanese
yen and the Swiss franc by approximately 9.18% and 6.62%,
correspondingly.
Asia Pacific
All countries within the Asia Pacific region declined during the
quarter, with Japan (-16.58%) showing the worst performance.
Japan’s economy continues to deteriorate as weak industrial
output numbers, declining corporate sales and falling profits were
reported. Japan’s parliament has taken action and passed a record
$897 billion budget for the next fiscal year, which begins in April,
to increase job growth, initiate new tax breaks and increase bank
lending. The best performers in the region were Hong Kong (0.47%) and Australia (-1.52%).
Emerging Markets
Emerging markets (1.02% return) outperformed developed
markets during the first quarter of 2009. Within Latin America,
results were mixed and ranged from the best performance in
Chile (13.65%) to the worst performance in Argentina (-15.07%).
India (-1.50%) has continued to experience slower growth. On a
relative basis, China (1.33%) has continued to outperform most
developed markets despite a severe decline in industrial profits for
the months of January and February and the fifth straight month
of declining foreign investment in the country.
Positioning and Outlook
Whether you believe the recent run in market performance is the
start of a turnaround or a periodic bounce in a bear market, we
feel there is little debate that current valuations present investors
with unparalleled long-term opportunities. Our research focus has
not wavered and continues to be driven by solid balance sheets,
sustainable earnings growth and diversified global revenues.
We also favor those companies who are able to generate their
growth internally as opposed to those reliant on external lending
conditions. Our commitment to higher quality investments has
helped performance as investors are attracted to their stability and
relative consistency. Technology investments provided leadership
in the first quarter and we continue to emphasize the productivity
enhancement capabilities of these companies. Other areas of focus
for our team include those firms central to the global infrastructure
build-out as well as those with exposure to emerging economies
overseas. We caution investors to be on the look-out through the
rest of this year for more volatility and complex speed-bumps to
navigate. The foundation for future economic improvement is
being constructed brick-by-brick and we believe all will benefit in
the long-term.
Index Definitions
The MSCI World Index is a market capitalization weighted index designed to measure the equity
market performance of 23 economically developed markets. The S&P 500 Index is generally considered
representative of the U.S. stock market. The MSCI Europe Index and MSCI Pacific Index are market
capitalization weighted indexes designed to measure the equity market performance of 16 and 5
economically developed countries, respectively, in their named regions. The MSCI Emerging Markets
Index is a market capitalization weighted index designed to measure the equity market performance of
23 emerging market country indexes. Country Return Statistics: Unless otherwise noted, country equity
returns are based on the appropriate MSCI Index for the country listed.
Unmanaged index returns assume reinvestment of any and all distributions and do not reflect fees,
expenses or sales charges. Investors cannot invest directly in an index.
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