Marietta Market Update

20 January 2012, 4:02 pm

Global Stock Markets off to Strong Start in 2012 Led by Emerging Markets

Tags: China, U.S. Economy, Financial Times, Bloomberg, emerging markets


So far this year globalstock markets have risen at a rapid pace; extending the rally begun in thefourth quarter of 2011.  Since January 1,the S&P 500 gained 4.5%, a starting year rally not seen since 1987. Overthe same time period, the iShares MSCI Emerging Markets Index Fund (EEM) gained9.1%, the fastest rise since 2001.

Articles in the Financial Times and Bloomberg have noted a pattern in this rally. The biggest decliners lastyear have led the charge this year. Year to date the EEM, which lost 21.1% in2011, has gained twice as much as the S&P 500. On a sector basis within theS&P 500, financials, industrials, and materials have been leading the recentrally. These same sectors have greater exposure to emerging markets and wereamong the worst performers last year. Utilities, health care, and consumerstaples had been the best performing sectors in 2011 but have been among theworst performing sectors in 2012.

Economists attribute thesurge to a number of reasons:  in the U.S., positive economicdata continues to flow, manufacturing is growing, jobless claims are falling,and the unemployment rate is ticking down. Corporate profits remain high and Fedpolicy continues to be accommodating. Earnings season has begun with 60% of reportingcompanies beating expectations. Many global central banks are lowering rates inorder to promote growth after two years of raising rates. As mentioned inMarietta’s blog Promising News from China, recent events in China indicate that economicstimulus and easing will likely come soon to this engine of global economicgrowth.

Three weeks do not make ayear, but a continuation of current trends could result in 2012 beingdramatically different from 2011.

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17 January 2012, 5:31 pm

Promising News from China

Tags: China, U.S. Economy, Financial Times, Bloomberg, emerging marketsGDP Growth Estimates, Chinese monetary policy, China, soft-landing


On January 17, China announced that its economyexpanded 8.9% year over year in the 4th quarter. The news triggered a 4.9% jump in the Shanghai stock market,which was the largest single session gain since October 2009. On this news, the U.S., European and other globalmarkets also rose.

The 8.9% GDP growth is the slowest advance in 10 quartersand is attributed to slowing export demand and a weakening property market. This increases the pressure on Premier WenJiabao to ease monetary policy, which would be viewed by investors as a strongpositive for the Chinese stock market. On the other hand, the 8.9% was above the 8.7% median estimate of aconsensus of economists, and well above the 8% that policy makers considernecessary. This supports the argument thatthe Chinese economy will experience a “soft landing,” which would also be verypositive for the Chinese and other global stock markets.

A “soft-landing” in China and other leading economiesis very important to the positive economic and market forecast presented in ourJanuary 3 Outlook. Emerging economies now account for 50% of theworld’s GDP and approximately 70% of GDP growth. Healthy and sustainable growth in the Chineseeconomy is thus necessary for a global economic expansion requisite to supporta resurgence of international markets. The news is very promising, but not decisive. 

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