Tuesday, January 10, 2012

Financial Markets 2011 Review: Insights for 2012

Happy new year 2012! Before the end of this Chinese year, it is time to wrap up the exciting financial year of 2011. In this article, we shall review the annual performance of global stock markets, forex markets, bond markets as well as commodities markets in 2011.

(A) Forex Markets:

The global foreign exchange (forex) markets lost one safe-heaven currency in 2011 as Swiss National Bank (SNB) pegged Swiss Franc (CHF) with Euro and capped EUR/CHF at 1.2 since September 2011.

Due to strong demands but limited choices of safe-haven currencies, US Dollar Index stayed above 80 and gained +1.5% YoY in 2011 despite of its huge domestic fiscal deficits.

Although Japan continued to print more and more money, JPY (Japanese Yen) still could be the best-performed major currency in 2011.

Euro, as the centre of the storm in 2011, dropped to a 10-year-low of 99.96 (below 100) against JPY amidst the severe European sovereign debt crisis. Euro also lost by -3.3% YoY against USD in 2011.

Currencies of emerging markets, however, were in troubles in 2011 as capitals flowed out rapidly from the emerging countries. Indian rupee, after hitting its record low of 54.3 against USD on mid-December on severe capital outflows, finally dropped by -19% YoY against USD in end-2011 and became the worst-performed currency in Asia of the year.

In China, as RMB remained non-fully convertible, the Chinese currency appreciated +4.6% YoY against USD in 2011. Offshore RMB market in Hong Kong continued to grow fast and the deposits there already hit RMB 627.3 billion as of November 2011.

(B) Bond Markets:

In the U.S., the bond market performed exceptionally well as the European sovereign debt crisis worsen in 2011. The yields of 10-year U.S. Treasury note and 30-year U.S. Treasury note went down by -43% YoY to 1.87% and by -33% to 2.88% respectively at the end-2011.

In Europe, of course, the PIIGS government bond markets were in big troubles in 2011. The yield of 10-year Greece government bond increased by +23.6% YoY to 35%. The yield of 10-year Portugal government bond increased by +6.5% YoY to 13%, and the yield of 10-year Spain government bond increased by +0.85% YoY to 5.4%. Bond market in Italy also experienced its worst year since 1992 as the yield of 10-year Italy government bond hit its euro-era high of 7.5% in November and finally increased by +2.8% YoY to 6.98% in end-2011.

By the contrast, Germany bonds were the obvious 2011 winner in Euro-zone as Euro investors still needed a safe-haven to invest in. The yield of 10-year Germany government bond hit all-time low of 1.636% in September and finally down by -40% YoY to 1.843% level in end-2011, the largest euro-era annual drop ever.

(C) Stock Markets:

Here is the summary table for annual performance of worldwide stock markets in 2011:

Name of IndexYTD Change (%)Country
PSE Composite+4%Philippines
S&P 500-0.003%USA
JSE Africa-0.7%South Africa
NZX 50-1%New Zealand
FTSE 100-5.6%Britain
KOSPI-11%South Korea
TSX Composite-12%Canada
Straits Times-17%Singapore
CAC 40-17%France
Nikkei 225-17%Japan
Hong Kong HSI-20%China
Shanghai SSE Composite-22%China
BSE Sensex-25%India
FTSE MIB-25%Italy
Athex Composite-50%Greece

Table: Annual Performance of worldwide stock markets in 2011

For developed markets, U.S. ranked the number one as DJIA (Dow Jones Industrial Average) gained +5.5% YoY in 2011. For emerging markets, Indonesia was the winner as its benchmark stock index, Jakarta Composite Index (JCI), gained +3.2% YoY in 2011 and achieved a real gain of +6% YoY in USD terms.

In conclusion, as the sovereign debt crisis escalated in Europe and worldwide capitals continued to flow into USD-zone, MSCI World Index dropped by -7% YoY in 2011 and MSCI Emerging Markets Index dropped by a even larger percentage of -20% YoY in 2011.

(D) Commodities Markets:

(i) Energy

The historical premium of New York crude oil over Brent crude oil had come to an end in 2011, mainly due to the conflicts in the Middle East region. New York crude oil finished at $98.8 per barrel with a +8% YoY gain, while London ICE Brent crude oil finished at $107.4 per barrel with a even larger +13% YoY gain in 2011. Gasoline also gained by +9.5% YoY in 2011. By the contrast, natural gas was a big loser of the year, down by -32% YoY in New York on plentiful supplies.

(ii) Precious Metals

In 2011, Gold hit a record peak in September and finished at USD$1566 per ounce, a +11.5% YoY gain, and also another new yearly historical high. Silver almost hit USD$50 per ounce in April, and finally lost by -10% YoY in end-2011. Palladium and platinum lost by -18% YoY and -21% YoY respectively in 2011 for slowdown in demands.

(iii) Base Metals

Copper hit its all-time peak of $10200 per tonne on the London Metal Exchange (LME) in February, then finished at $7600 per tonne in end-2011, tumbled by -21% YoY mainly due to the slowdown of industrial and manufacturing activities in China and Europe. For the similar reason, zinc and nickel fell by -25% YoY, lead by -20% YoY, and aluminum by -18% YoY respectively in 2011. Tin was among the worst for all base metals and plunged by -29% YoY in 2011.

(iv) Agricultural Commodities

Corn, after hitting its all-time peak in June on tight supplies in Argentina, finally gained +3% YoY in end-2011. Many other agricultural commodities, however, had much weaker performance due to the easing demands. Cotton tumbled by -37% YoY, cocoa sank by -31% YoY, sugar (raw) plunged by -27% YoY, wheat fell by -18% and soybean lost by -14% YoY in 2011.

In conclusion, the centre of the financial crisis is now in Europe and it will continue to evolve in 2012. The performance of investment markets has been very sensitive to the news about the European debt crisis. In general, investors trend not to take risks and trend to put their money in USD-zone as the markets can suddenly crash or over-react whenever there is any bad news from Europe. The latest EU rescue measure was to lend ample amount of liquidity (EUR 489.1 billion) to European banks through LTRO (Longer-term Refinancing Operations) from ECB (European Central Bank). Although this kind of 'European-style Backdoor QE' (Quantitative Easing), has not been able to encourage banks to buy Eurozone sovereign government bonds immediately through 'Sarkozy carry-trade', at least it can buy time for European banks to re-organize their balanced sheets.

We wish the above review summary of global financial markets can give you some investment insights for 2012.

Last but not least, you are now invited to participate in our poll for the top 10 economic news of 2011. Here is the guideline for the poll:

(a) Find out which 2011 news you want to vote for from the following 4 links:

Financial Review 2011 Q1: Rising Inflation Concerns,
Financial Review 2011 Q2: Crisis Recurred,
Financial Review 2011 Q3: Spreading Crisis, and also
Financial Review 2011 Q4: EU Break-up or Stronger Integration?

(b) Write down the simple description and the date of the news you vote, then simply Send us by Email .

(c) One email address can vote a maximum of 10 news.

Act now! Please vote for top 10 economic news of the year! Deadline is January 17, 2012. We will announce the poll results by the end of this month.

Related article(s) for 2010:
Financial Review 2010: where had all the Hot Money gone
Important 2010 Internal Review for you


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