US, Japan defy worst equities quarter since 2012

06_US_Japan defy worst equities quarter since 2012

Michael Koziol
(The Age)

Global equities have just capped the worst quarter of trade since the second quarter of 2012, at the peak of the Eurozone crisis. However, the US market logged its seventh consecutive quarterly gain.

Currently, there are only two major sharemarkets that have upside momentum – the US, and Japan, thanks to its falling yen.

The Dow Jones Industrial Average rose 1.29 per cent for the September quarter, while the S&P500 climbed 0.62 per cent, adding to respective year-to-date gains of 2.81 per cent and 6.70 per cent.

Better than expected growth indicators were responsible for US gains, Morgan Stanley investment strategist Malcolm Wood said.

“It appears to support the idea that the US economy is robust enough to perform without special Fed support,” he said. “That’s a positive.”

But elsewhere, stocks slid in the September quarter on the back of falling commodity prices, deteriorating growth indicators in Europe and China and an anticipated rise in US interest rates.

The ASX 200 declined 1.91 per cent, Hong Kong fell 1.11 per cent, the London FTSE lost 1.80 per cent and the German DAX dropped 3.65 per cent.

Fed outlook

Mr Wood said expectations that the US Federal Reserve will lift interest rates had a limited overall impact on equities.

“That’s definitely shaken markets but if you look at what’s happened to bond yields, you’d sort of say it’s a fairly temporary effect. It’s mainly the currency that’s been doing the damage,” he said.

Japan bucked the global trend, with the Nikkei lifting 6.67 per cent for the quarter as the yen continued to fall against the US dollar to the benefit of exporters. Much of the growth occurred in September, recuperating losses earlier in the year.

The same cannot be said for Australia, where the ASX 200 fell 5.92 per cent in September.

Miners suffered from a collapse in commodity prices, with the Bloomberg Commodity Index down 12 per cent since June 30, the biggest quarterly decline since 2008.

Mr Wood said concern over the Russia-Ukraine dispute and poor purchasing managers’ index (PMI) figures in Europe contributed to a loss of confidence in that market.

“A lot of attention is given to the PMIs in Europe…which have deteriorated. The last one had a composite of 52.3 for September which was a nine month low,” he said.

Worse than expected data from China had kept Hong Kong markets down over the quarter, compounded by pro-democracy demonstrations in recent days, Mr Wood said. Meanwhile, the Shanghai Composite Index posted a dramatic gain of 15.40 per cent for the quarter.

“I tend to think that’s a pretty unreliable indicator but there’s no doubt that the government’s trying to get that market to function,” he said.

Turnaround prospects

Mr Wood said there were reasonable prospects of a turnaround in equities, with the European Central Bank expected buy €200 billion of asset-backed securities following a meeting this Thursday.

“There’s [also] some euro weakness which I think is good news for Europe,” he said.

Emerging markets were hit hard, with the MSCI Emerging Markets Index declining 4.33 per cent in the September quarter. Brazillian equities were up 1.78 per cent for the quarter but crashed 11.70 per cent in September.

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