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Stocks’ excellent first quarter

Stocks’ excellent first quarter

Preservation of capital is fast losing ground to increased risk-taking as global equity markets close the quarter with a stellar performance.

Investors are concerned that they will miss the accelerating upside move.

Out of the 78 major financial markets around the world, the score is 66 positive in the first quarter, with 50 per cent achieving double digit gains, and only 12 negative.

In the US, the Dow Jones Industrial Average rose 8.14 per cent and the S&P 500 rose 12 per cent, their best first-quarter performances since 1998. The Nasdaq advanced 18.67 per cent, its best first-quarter performance since 1991, thanks mainly to a stunning 50 per cent gain in Apple.

Japan’s Nikkei 225 was the best performer among the major market averages with a gain of 19.3 per cent, the highest in 24 years. Exporter stocks were on the rise due to the weakening yen.

Still, the real action was in the emerging markets. The world’s best-performing market was Venezuela’s Bolsa De Valores De Caracas, which posted an incredible 71.96 per cent gain.

This was largely due to high oil revenues as crude oil also posted a quarterly gain of 4.24 per cent, stubbornly hovering between $97 and $110 a barrel. Other major oil producing countries followed suit, Saudia Arabia’s Tadawul posting a buoyant 21.87 per cent gain.

In Asia, the MSCI Asia Pacific index rose 13.5 per cent. In addition to Japan’s impressive upward move, Vietnam’s Ho Chi Minh Stock Index gained 25.45 per cent, Pakistan’s Karachi Stock Exchange posted a 21.98 per cent rise, and India’s Bombay Stock Exchange 30, or Sensex, was up 10.4 per cent.

The worst-performing market was Sri Lanka with a 10.9 per cent decline, followed by the next emerging European sovereign debt basket case, Spain, which posted a quarterly loss of 7.65 per cent.

Noted underperformers in the quarter were China with a paltry 2.4 per cent gain and Canada with a 2.8 per cent increase, despite falling into the oil-producing country category.

In the US, financial and technology stocks were the best-performing sectors.

Globally, European banks shares, junk bonds and emerging-market currencies did well.

There were several drivers that moved the markets higher.

The world’s largest economy, the US, remains robust as a result of an expanding manufacturing sector, a continual improvement in employment and a rise in consumer confidence.

Also, GDP grew 3 per cent in the fourth quarter of 2011 and 1.7 per cent for the full year, and the Federal Reserve stuck with its loose monetary policy, keeping Fed funds rate at a mere 0.12 per cent.

Globally, the general consensus is China will avoid a hard landing, and Europe is coming to grips with the severity of its sovereign debt crisis and taking the necessary actions to alleviate market anxiety.

So following a fantastic first quarter that market experts failed to predict, with gains in three months that markets would be happy with for a full year, are there opportunities still remaining?  

The good news is that April tends to be a strong month for equities.

The S&P 500 for instance has risen every April in the past five years with an average return in that period of 4.5 per cent for the month.

The rally has been driven by institutional investors, with retail investors still substantially on the sidelines, holding monies that could be unleashed.

Most analysts are predicting a rebound in the energy, basic materials and consumer sectors and a downturn in utilities and telecom.

Japan still remains a bargain with its main index trading at book value.

Anthony Galliano is the chief executive of Cambodian Investment Management. 
[email protected]

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