Hung, drawn and (second) quartered

July 2, 2009

By any standard the second quarter of 2009 was remarkable. Here are some numbers to chew over as the third quarter gets under way:   

— World stocks as measured by the MSCI All-Country World Index had their best quarter since the benchmark was first compiled in 1988.

    — The world index gained 21.2 percent for the second quarter. Its nearest “competitor” was the fourth quarter of 1998 when it rose 20.66 percent.

    — Much of the index’s gain this quarter came in the first two months. The index was essentially flat in June as investors began trading in a tight range.

    — Emerging markets were the main driver. MSCI’s sub-index for the sector gained 34.3 percent for the quarter, also a record high. Asian shares have been among the stars, with the MSCI Asia-Pacific ex-Japan index rising 33.7 percent. This was more than twice the gain on the U.S. Standard & Poor’s 500 index.

    — A big decliner was volatility. The Chicago Board Options Exchange Volatility Index, often called Wall Street’s fear gauge, fell below 30 percent at the end of the quarter to its lowest level since before the collapse of Lehman Brothers.

    — Over the quarter the VIX has lost 40.3 percent, reflecting growing confidence among investors that equities have ended the tumble of the past year or so.

    — One of the biggest percentage gainers was oil. New York crude gained around 42.2 percent on expected demand from a recovering world economy. Other commodities also made strong gains, with copper up 23.4 percent.

    — Hopes for a global recovery and rising concerns about future inflation — linked to the oil price surge and super-easy credit policy — pushed government bond yields and mortgage rates higher. Ten-year U.S. Treasury yields jumped 87 basis points over the quarter to 3.54 percent, having topped 4 percent at one point in early June. Ten-year euro zone government yields ended the quarter 39 basis points higher at 3.38 percent.

    — A growing appetite for higher-yields boosted demand for emerging market debt. Emerging sovereign debt spreads narrowed 212 basis over U.S Treasuries according to JPMorgan.

    — Investors ended the quarter clearly committed to future gains in higher-yielding assets. Reuters asset allocation polls for June showed cash reserves at a 23-month low, a sign that money was being put to work. EPFR Gobal data showed that about $130 billion has exited safe-haven money market funds in the year to date, but that is still less than a third of the $455 billion of cash that flocked to those funds in 2008 as a whole.

(Reuters photo: Gary Hershorn)

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