Global markets posted their first negative monthly return since February. The MSCI World Index fell by 2.7% overall. The month was volatile with initial gains eroded by a sharp sell off in the latter days of October. However, since the market lows in early March the MSCI World Index has gained over 40% in Euro terms, a performance that has largely gone ignored by many investors.

The last eight months or so have seen a striking recovery in equity markets. Several important negative factors which engulfed markets, including the free-fall in the US real-estate market and substantial destocking in global industry, gradually eased. In their place emerged positive economic data from major economies and strong earnings reports from many companies.

Governments also succeeded through far-reaching intervention in somewhat restoring confidence in the financial system. They also provided direct growth stimuli in the shape of measures like income support and car scrappage premiums, which have already begun to bear fruit.

The global economy moved out of recession last summer and appears to be growing at a solid rate in the second half of the year. The turnaround in Asia in particular has been impressive. Various economies in the region – particularly those with a substantial industrial base – have already recorded strong growth in economic activity, and leading indicators suggest that the better economic news could persist for some time.

That’s not to say, however, that all the problems have now gone away or that the world economy is headed straight towards a new phase of strong and sustainable growth. The risks are still present and this can be seen in the sell off in markets in late October. This sell off came about largely as investors realised that while the recession was over, there are still substantial “headwinds” to economic growth, such as high consumer debt levels and restricted availability of credit.

Source – KBC Asset Management & Irish Life Investment Managers.