The MSCI AC Worldindex rose by 3.81 per cents. In the bond markets, the Lehman Global Aggregate index delivered a 1.63 per cent return, led by the hitherto beleaguered areas of emerging-market debt and corporate bonds amid a return of risk appetite. However, investors continued to avoid below-investment-grade securities and asset-backed securities in general.
Investor sentiment was underpinned by hopes for another cut in US interest rates and the Fed delivered a 0.25 per cent. The VIX index of S&P 500 volatility continued to move down from peak levels set in July and August but remained more than 50 per cent up from where it started the year.
The MSCI AC World Growth index continued to outpace its MSCI AC World Value counterpart while sector performance was a mixed bag. The energy sector rose along with crude oil prices.
The MSCI Emerging Markets index rose by an impressive 11.15 per cent in anticipation of a US rate cut. With the exception of just one country, Hungary, all the emerging markets gained ground and a significant proportion posted double-digit returns.
The UK was the top performer among the developed markets, helped by strong data, notably better than expected Q2 GDP growth and a surge in September retail sales. European and US equities tracked gains in the broader global markets. US data releases highlighted the deteriorating housing market which is in stark contrast to the rest of the economy. Japan’s Topix was again the laggard among developed equity markets.
Global bond markets saw broad-based gains. Corporate bonds outperformed government issues but the ABS sector remained gloomy amid more nasty surprises from investment banks.
The dollar lost value against all major currencies apart from the yen.
Investors have remained jittery but global equity markets have continued to benefit from strong business conditions and company profitability which have cushioned the impact of the credit crunch but the risk to overall economic growth has nevertheless shifted to the downside and markets could remain vulnerable to further setbacks in the near term. Investors can take comfort in the support from central banks by direct liquidity injections and looser monetary policy.
Mark McCarron is a senior client portfolio manager at SEI