Wed, 06/06/2012 - 13:22
Global markets continued downward in May, posting deeper declines than they did in April, according to Howard Silverblatt of S&P Indices…
The main concern was Greece, where preliminary elections left no single party able to form a coalition government. Those holding the most power called for a change in agreed-upon austerity programs. It will be necessary for Greece and the EU to get back to the table and renegotiate the terms. However, in order to do that, Greece needs a central government, which may be formed after the next election on 17 June. Until then, there is great uncertainty about the future of Greece and the EU, and investors hate uncertainty.
In Asia, concern about Chinese growth continued, depressing those markets. In the US, with a successful earnings quarter completed, investors turned their attention to European issues, focusing on the 14% of sales that US companies get from them. The political and economic uncertainty resulted in another flight to safety – being to the US, where equity markets lost 6.47%, but were the best performing developed market.
All 46 markets posted a loss in May, with 35 posting double-digit declines. Losses were slightly less worse off in developed markets (due to the US performance), as even stronger markets such as Germany (off 14.71%) declined. Overall, equity markets lost USD 3.2 trillion in May, and while the year-to-date figure remains flat, the trailing one-year decline is USD 5.1 trillion, or a 14.73% decline. The 14.73% decline would have been a 22.70% decline ex the US, due to the weakness of non-US performance in 2011.
Emerging markets declined 11.42% (after last month’s 1.83% loss). Notably, China was down 11.05% less than the composite, making it the best of the BRIC markets. Russia was the worst BRIC member, off 21.73%, as India declined 11.57% and Brazil fell 14.55%.
Developed markets did better, thanks to the US, falling 9.07% (they fell 1.26% last month). Greece fell the most, off 28.67% in the month, bringing its one-year decline to 65.32%.
In Europe, Italy was off 17.25%, Spain down 18.00%, and Portugal 21.50% lower for the month; even Germany fell 14.71%, as their interest rate cost fell, reflecting their stronger economy. The overall YTD number is now negative, at -0.09%. After a poor 2011, investors were hoping for more of a bounce-back. While no one is writing off 2012, until the European situation clears up, it remains difficult for investors to commit. By the end of June, some of that uncertainty should be demystified 17 June for the Greek election, and 28 June for the start of the EU summit.
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