Thursday, January 31, 2013

Financial Markets 2012 Review: Insights for 2013

Joyful 2013! Prior to the end of current Chinese Lunar year, we have to say it is a perfect time to wrap up the whole 2012 financial year now. Just like what we did last year (Reference: 2011 Global Financial Markets Review), we are going to review with you the 2012 annual performance of global forex (foreign exchange) markets, equity markets, commodities markets and also bond markets in the following paragraphs. Hope that the below global financial markets review can provide you a few useful insights for your new 2013 investment plan.

(A) 2012 Stock Markets Year-end Review:

Below is a summary table for 2012 annual performance of major global stock markets:

Name of Stock Market IndexYTD Change (in Percentage)Country/Region
PSE Composite+33%Philippines
Athex Composite+33%Greece
KFX Copenhague+27%Denmark
Bombay BSE Sensex 30+26%India
NZX 50+25%New Zealand
FTSE/JSE Africa+23%South Africa
Hang Seng HSI+23%Hong Kong
Nikkei 225+23%Japan
Straits Times STI+20%Singapore
NASDAQ Composite+16%USA
OSE Benchmark+15%Norway
S&P/ASX 200+15%Australia
CAC 40+15%France
PX+14%Czech Republe
S&P 500 Composite+13%USA
OMX Stockholm+12%Sweden
KOSPI+9%South Korea
OMX Helsinski+8%Finland
FTSE MIB+8%Italy
DJIA (Dow Jones Industrial Average)+7%USA
Tel Aviv 100+7%Israel
FTSE 100+6%Britain
S&P/TSX Composite+4%Canada
Shanghai SSE Composite+3%China
IBEX 35-5%Spain

Table: 2012 Annual Performance of Global Equity Markets

For major stock markets in developed countries, Greece was the winner in 2012 as its benchmark Athex Composite Index gained significantly by +33% YoY, while Spain was the top loser as its benchmark IBEX 35 Index fell by -5% YoY.

For major stock markets in emerging countries, Thailand ranked number one in 2012 as its benchmark SET Index raised by +36% YoY, which is a even bigger annual percentage gain than Greece, while Chile ranked the worse one in 2012 as its benchmark IPSA Index gained only by +3% YoY for the whole year. To summerize, as global equity market sentiment got better especially during the second half of last year, MSCI World Index eventually increased by +12% YoY and MSCI Emerging Markets Index increased by a even higher percentage of +15% YoY in 2012.

(B) 2012 Currency Markets Year-end Review:

Global currency markets in 2012 lost another safe-heaven currency as Japan new prime minister Shinzo Abe won election, triggered further monetary easing expectations and pushed down Japanese Yen (JPY) exchange rates since December 2012, after Swiss Franc (CHF) lost its safe-heaven currency status in 2011. At year-end, Japanese Yen (JPY) eventually fell by over -11% against USD in 2012, and became the worst-performed major currency of last year.

Because of that, although Euro (EUR) rebounded by +1.8% YoY against USD in 2012 as European sovereign-debt problems had a bit stabilized, US Dollar Index only dropped slightly to 79.76 by end-2012 (equivalent to -0.5% YoY loss) amidst the U.S. fiscal cliff crisis. On the other hand, benefited from hot money created by global quantitative easing policies, most commodity-currencies like New Zealand Dollar (NZD), Australian Dollar (AUD) or Canadian Dollar (CAD) did appreciate significantly in last year. New Zealand Dollar (NZD) finally gained by +7% YoY against USD in 2012 and became the best-performed major currency of last year.

For BRICS emerging markets, currencies such as India Rupee (INR), South Africa Rand (ZAR) or Brazilian Real (BRL) etc fell against USD by -4% to -9% and hence did not perform well in last year. Chinese Renminbi (RMB), however, was still relatively stable but appreciated only by +1% YoY against USD in 2012. Russian Ruble (RUB) performed relatively strong among BRICS and appreciated by +5% YoY against USD in 2012.

(C) 2012 Bond Markets Year-end Review:

U.S. bond market performance continued to be affected significantly by U.S. Federal Reserve monetary policies in last year. By end-2012, yields of 30-year U.S. Treasury note turned to increase (from 2.88% to 2.95%), although 10-year U.S. Treasury note still continued to fall (from 1.87% to 1.76%), signaled that longer-term inflation expectation had started to develop.

On the other hand, yields of PIIGS government bonds in Europe did turn to drop significantly in 2012, signaled that market sentiment for European sovereign-debt crisis had started to improve. Thanks to financial bailout funds from European Union (EU) and International Monetary Fund (IMF), yield of 10-year Greece government bond dropped significantly from 35% to 11.9% by end-2012. Yield of 10-year government bond for Portugal also fell sharply from 13% to 7%, while yields of 10-year government bonds for Italy and Spain also fell to 4.5% (from 6.98%) and to 5.27% (from 5.4%) respectively.

Not surprisingly, Germany government bond continued to be the top core bond of last year in Europe and the safe-haven for Eurozone. Yield of 10-year government bond for Germany continued to fall to 1.3% from 1.84% by end-2012.

(D) 2012 Commodities Markets Year-end Review:

China is a resource-demanding country, therefore any major change in global commodities markets should be becoming more and more important for China financial development. Thanks to the rebound of property markets for China and also the U.S., the best-performed commodity of last year was Lumber, which gained by an impressive +40% YoY in 2012. The worst-performed commodity of last year was Coffee, which lost by -37% YoY in 2012.

Below is a brief summary for 2012 annual performance of global commodities markets:

(i) Energy Market Performance Review.

New York crude oil prices and London Brent crude oil prices used to follow the same upward or downward trend, but there was something different for last year. London ICE Brent crude oil eventually finished at $111 per barrel (representing a +3.6% YoY annual gain), while New York crude oil finally finished at $91.8 per barrel (representing a -7% YoY annual loss) in 2012. Gasoline RBOB performed well and rose by +12% YoY at year-end. Furthermore, natural gas bottomed out around $2 per mm btu in New York, then rebounded and eventually gained by +13% YoY, which was its best-performed year since 2007.

(ii) Precious Metals Market Performance Review.

Gold eventually finished at USD$1675 per ounce, representing a +7% YoY gain in 2012 and also a new annual record high. Now Gold has been in its bull market for 12 consecutive years already. Silver finished at USD$30 per ounce, representing an annual gain of +8% YoY at year-end. Platinum and Palladium both also gained by +9.5% YoY and +7% YoY respectively in 2012 on tight supplies.

(iii) Agricultural-Based Commodities Market Performance Review.

Corn continued to rise on supplies tensions and eventually gained by +7% YoY in end-2012. Many other agricultural-based commodities, although not performed well in 2011, did start to rebound in 2012 owing to the U.S. drought of last year. By year-end, Wheat gained by +19%, Soybeans gained by +18% YoY, while cocoa also gained by +5% YoY. U.S. However, Cotton prices continued to decline and lost by -17% YoY on oversupply concerns. Sugar #11 (raw) prices also continued to drop and eventually lost by -16% YoY,

(iv) Base Metals Market Performance Review.

Copper eventually finished at $7970 per tonne in end-2012 on LME (London Metal Exchange), representing an annual gain of +4% YoY owing to recovery of China manufacturing activities in 2012 Q4. Price performance of other base metals, such as lead, zinc, aluminum, tin, nickel etc also did not have big annual changes at year-end.

To conclude, as global financial markets sentiment got better and investor confidence restored, 2012 was a relatively good year for most investment classes, especially for equality markets. While major central banks continued to conduct quantitative easing (QE) monetary policies and European sovereign-debt crisis continued to ease, we hope this good trend can continue in 2013. We also hope that the above global financial markets review can provide you a few useful insights for your new 2013 investment plan. No matter you are bullish on 2013 global financial markets or not, we still want to remind you that the rise of longer-term inflation expectation or the weak pace of global economic recovery are two key investment risks for 2013.

More Financial Markets Review: Our Full Financial Markets Review.


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