Short view By Philip Coggan - Financial Times
Short view By Philip Coggan
Published: June 30 2006 03:00 | Last updated: June 30 2006 03:00
Copyright The Financial Times Limited 2006
A first half that promised so much for investors has turned out to be disappointing. The MSCI World Index is up just1 per cent, the S&P 500 and emerging market indices are flat and the Nikkei 225 in Tokyo has lost 6 per cent. Nor have bonds been of much comfort, with the US Treasury bond yield moving up from4.4 per cent to 5.25 per cent over the course of the half.
Clearly investors became too confident in the first quarter. "We realised our targets for equity market performance within the first three months," says Michala Marcussen, chief economist at Société Générale Asset Management.
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One problem for the markets was the move into "alternative" asset classes. The enthusiasm for commodities was part of a general desire for risky assets, which also included equities (particularly emerging markets).
According to Société Générale, the correlation between equities and commodities has risen to its highest level in decades. Whether the sell-off in May started in the equity market or in commodities, this high correlation has prompted hedge funds to sell both asset classes.
Reports that the metal components of US and UK coins had become worth more than the coins' monetary value may have triggered the fall, but whatever the reason it was rapid and widespread; if gold is a hedge against inflation and geopolitical risk, it certainly has not behaved like one over the past couple of months.
In spite of the recent commodity sell-off, metals and mining stocks have been the best performing sectors of the first half, while technology and general retailers have suffered most.
Investors have moved from belief in the "Goldilocks" combination of strong growth and low inflation in the first quarter to being worried about the "wicked stepsisters" of inflationary pressures and a growth slowdown as central banks repeatedly raise rates.
David Bowers of Absolute Strategy Research says the risk of a further leg down in markets in the second half stems from the fear that central banks will have to keep growth below trend for a couple of quarters to see off the inflationary threat.
Published: June 30 2006 03:00 | Last updated: June 30 2006 03:00
Copyright The Financial Times Limited 2006
A first half that promised so much for investors has turned out to be disappointing. The MSCI World Index is up just1 per cent, the S&P 500 and emerging market indices are flat and the Nikkei 225 in Tokyo has lost 6 per cent. Nor have bonds been of much comfort, with the US Treasury bond yield moving up from4.4 per cent to 5.25 per cent over the course of the half.
Clearly investors became too confident in the first quarter. "We realised our targets for equity market performance within the first three months," says Michala Marcussen, chief economist at Société Générale Asset Management.
ADVERTISEMENT
One problem for the markets was the move into "alternative" asset classes. The enthusiasm for commodities was part of a general desire for risky assets, which also included equities (particularly emerging markets).
According to Société Générale, the correlation between equities and commodities has risen to its highest level in decades. Whether the sell-off in May started in the equity market or in commodities, this high correlation has prompted hedge funds to sell both asset classes.
Reports that the metal components of US and UK coins had become worth more than the coins' monetary value may have triggered the fall, but whatever the reason it was rapid and widespread; if gold is a hedge against inflation and geopolitical risk, it certainly has not behaved like one over the past couple of months.
In spite of the recent commodity sell-off, metals and mining stocks have been the best performing sectors of the first half, while technology and general retailers have suffered most.
Investors have moved from belief in the "Goldilocks" combination of strong growth and low inflation in the first quarter to being worried about the "wicked stepsisters" of inflationary pressures and a growth slowdown as central banks repeatedly raise rates.
David Bowers of Absolute Strategy Research says the risk of a further leg down in markets in the second half stems from the fear that central banks will have to keep growth below trend for a couple of quarters to see off the inflationary threat.
posted by Carlos T Mock at 9:28 AM
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