Global equity markets posted their seventh successive positive monthly return in September as the global economic recovery maintained it’s momentum. The MSCI World Index rose by 2.1% in Euro terms, with emerging markets posting the strongest return, and all major regions being in positive territory.

The recovery from March 09 low levels has been as a result of convincing signals of economic recovery emanating from all major regions across the world. The economic stimulation packages announced by governments some time ago ($3 trillion in total) have begun feeding through more and more into the real economy.

The chief beneficiaries of the recent upturn have been countries with a significant, export-oriented industrial sector, such as many Asian economies and Germany. Most of these countries emerged from recession as early as Q2 2009. Other industrial countries almost certainly followed suit during the summer months.

Leading indicators have risen rapidly in virtually all the industrialised economies and the world economy now looks set for a very steady rebound in the second half of 2009.

Industrial metal and precious metal commodity prices have also enjoyed a period of increase as industrial activity (especially in China) has increased the demand for raw material inputs.

The principal elements underpinning the current recovery – government stimulation packages and the inventory cycle – are not, however, sustainable growth factors. We will have to wait and see what happens once these temporary growth promoters have played out. The exit strategies by governments from these elements are clear – interest rate and tax hikes as well as the abolition of cash injection programs. However the timing of these measures are far less certain and markets will inevitably turn their attention to this in coming months when it becomes clear that economies are again able to stand on their own two feet unaided by policy support.

Source – KBC Asset Management & Irish Life Investment Managers.