Equities set to recover

PUBLISHED : Tuesday, 14 June, 2011, 12:00am
UPDATED : Tuesday, 14 June, 2011, 12:00am


Traditionally, May is considered a dull month for equities and other investments, as most traders take a breather after a hectic spring season.

This year, though, global equities have taken a different turn. Equities fell last month, as signs emerged that the global economy was slowing.

According to Skandia Investment Group, global equity markets were also undermined by renewed turbulence in Greek and other peripheral bond markets.

Other risk assets, such as non-government bonds and commodities, also fell, with oil more than US$10 a barrel weaker for the month.

As for China, Skandia says there were positive signs that measures imposed by the central government to cool the economy were finally working.

'There were further signs that China had slowed in response to tightening monetary conditions,' the investment house said in its newsletter to clients.

'The policy-induced slowdown will be welcomed by the Chinese authorities who had feared that the economy could overheat. This slowdown should reduce the amount of further monetary tightening required.'

According to the investment house, economic data had suggested that the global economy had started slowing in the spring, partly in response to the earthquake and tsunami in Japan and partly in response to the rise in the price of oil.

Signs of a slowdown were most evident in China and the United States, while the euro zone remained surprisingly resilient, with Germany continuing to grow at a rapid rate.

After a modest slowdown in the second quarter of this year, Skandia and other investment houses expect the global economy to pick up in the second half of the year, although other investors are concerned about a more prolonged slowdown.

As for the fixed income market, strategists and analysts are keeping their fingers crossed.

They are mostly worried about the Greek sovereign bonds situation.

Greek bonds fell sharply again, while Irish and Portuguese bonds were also much weaker.

With Greece unlikely to be able to raise funds in the bond market next year, when their bailout package expires, attention focused on how Greece would meet its funding needs.

Most expect Greece to default at some point, although the European Central Bank has argued against any such move in the near term.