The first quarter of the year turned out to be very strong for equity markets in particular. The strong returns were driven by a combination of a better macro outlook for 2013 and investors’ increased appetite for risk assets.

The MSCI World equity index gained almost 11% in euro terms (10% in local currency), though bond market returns were low, as the over 5-year eurozone bond index returned a barely positive 0.4%. There was a large return divergence across equity markets with Japan and North America leading the way with gains of almost 22% and 13% (in local currency) respectively.

At the other end of the spectrum, local currency returns from Emerging Markets and the eurozone were weaker at minus 0.4% and plus 2%. In other asset classes, commodities had a poor quarter, with most indices showing small losses (though energy prices were generally up). It was a positive quarter for other familiar alternative asset classes such as Hedge Funds and Currencies.

Global equity markets bottomed approximately four years ago during March 2009 and since then – despite the persistent macro worries and crisis headlines – have posted strong returns. The bellweather S&P500 index bottomed in March 2009 and has since returned over 130%, recently hitting new all-time highs.

It’s important to note, of course, that the rise hasn’t been in a straight line and there have been about a dozen falls of 5% or more along the way, including two that saw falls of more than 10%. In all cases it turned out to be the case that they in fact represented buying opportunities. Throughout that period there have been persistent predictions and highlighting of “doom and gloom”.

The old adage that “The stock market always climbs the wall of worry” has yet again been validated…… so far.

Source: Kleinworth Benson Investors, April 2013.