July 1st, 2010
Investors look for safe havens as equity falls
Investors look for safe havens as equity falls: Financial Times 01.07.10 Michael Mackenzie in New York
Global equity markets have suffered their worst first half since 2008, while top-tier government bonds and gold have reaped solid returns. The performance of markets during the first half of 2010 is a tale of two quarters as equities and commodities enjoyed a strong start to the year, only to falter sharply in April when the debt problems in the eurozone erupted.
“The first half of the year is dead and it nearly killed a lot of market folks, so we’re keen to see it behind us,” said David Ader, strategist at CRT Capital. Risk aversion came to the fore during the second quarter as doubts about the sovereign debt of Greece, Spain, Portugal and Italy rattled investors. The euro, global equities and non-German government bonds in the eurozone were hit hard by selling since April as investors sought havens: gold, the dollar, the Swiss franc and US Treasuries.
Debt concerns in the eurozone and the adoption of austerity measures in Europe and the UK came as signs that economic activity in China, which sharply boosted its economy in 2009, is slowing. In turn, recent US data have shown the economy is weakening and inflation is abating, hindered by weak private sector job creation.
On Wednesday at midday in New York, the FTSE All World index was down 9.6 per cent for the year amid worries about a second-half slowdown that could spark a double-dip recession in some countries and the growing prospect of deflation. The Shanghai equity market dropped 27 per cent, while Spain’s Ibex 35 index has fallen 22.4 per cent, amid worries about Spanish banks. On Wednesday the S&P 500, the world’s most followed index for professional investors, was down 6.3 per cent since January, led by sharp declines of stocks in the materials, energy, telecoms and technology sectors. In contrast, Barclays’ index of US Treasuries has returned 5.8 per cent this year, while a basket of bonds with a maturity of more than 20 years has gained 14.2 per cent.
Gold is up 13.3 per cent, the dollar index has risen 10.2 per cent, with the euro falling 14.3 per cent. Meanwhile, the Swiss franc has gained 12.1 per cent against the euro and 4.1 per cent versus the dollar. “Low rates are cueing up a scenario where growth relapses to the lower 2 per cent or under in [US] gross domestic product, while at the same time it suggests that inflation will be temporarily struck from the English lexicon,” said George Goncalves, head of interest rate strategy at Nomura Securities. Worries about growth have knocked US crude oil prices 4.3 per cent lower. The Reuters-Jefferies CRB index of commodity prices has dropped 9.1 per cent.
Copyright The Financial Times Limited 2010