Economics & Strategy
Continued Outerperformance for Equities in Developed Markets
—Sean Darby, Global Head of Equity Strategy
Global equities performed well during the first part of 2013, helped by improving macro data from the U.S., ongoing monetary loosening by central banks and a switch in sentiment away from fixed income. In contrast to the start of previous years, developed markets led the way with the S&P 500 and European indices outperforming emerging market equities. Japan also saw a positive start to 2013 as investors sought to align their investments with “Abenomics” and the commitment by the authorities to pull Japan out of deflation. U.S. equities were helped by a better than expected 4Q earnings season and an upswing in M&A as well as strong equity fund inflows. European bourses began sprightly but gave back their early gains as the Italian election resulted in a stalemate and the Cyprus bailout was rejected by the country’s parliament. Emerging markets experienced a mixed performance with the Asian markets leading the way while China saw its earlier gains eroded post Chinese New Year as economic data disappointed.
We continue to favor developed markets with the U.S., Japan, the UK and Switzerland our preferred stock markets. In particular, the U.S. and Japan are experiencing a resurgence in positive earnings revisions while weaker currencies have helped the UK and Swiss bourses. Global fund flows remain supportive for a rotation out of fixed income into equities while we also expect a significant rotation within equity markets as investors move away from defensive positioning into more cyclical sectors.