It’s not shaping up to be a good year for emerging equities. They are almost 3 percent in the red while their developed world counterparts have gained more than 7 percent and Wall Street is at record highs. When we explored this topic last month, what stood out was the deepening profit squeeze and steep falls in return-on-equity (ROE). The latest earnings season provides fresh proof of this trend and is handily summarized in a Morgan Stanley note which crunches the earnings numbers for the last 2012 quarter.
Ok, it’s a big policy week and of course it could either way for markets. An awful lot of ECB and Fed easing expectations may well be in the price already, so some delivery would appear to be important especially now that ECB chief Mario Draghi has set everyone up for fireworks in Frankfurt.
European equities are getting some investor interest again.
As the ongoing debt crisis erodes consumer spending and corporate profits, the euro zone’s share in investors’ equity portfolios has fallen in the past year –Reuters polls show holdings of euro zone stocks at 25 percent versus over 36 percent a year back. Cash has fled instead to U.S. stocks, opening up a record valuation gap between the European and U.S. shares. (see graphics below from my colleague Scott Barber). In fact no other region has ever been considered as cheap as the euro zone is now, a monthly survey by Bank of America/Merrill Lynch found in June.
Just how miserable a month May was for global equity markets is summed up by index provider S&P which notes that every one of the 46 markets included in its world index (BMI) fell last month, and of these 35 posted double-digit declines. Overall, the index slumped more than 9 percent.
It was all about the United States last month as far as equity markets were concerned. S&P’s world equity index may have ended the month with a small gain of just 0.3 percent but that was down to a 3 percent rise on U.S. markets, data from the index provider shows. Strip out the U.S. contribution and it would have been a pretty poor month for world equities. Beyond Wall St, there was a decline of 1.7 percent and $285 billion lost in market value. Instead, the $418 billion added to U.S. market capitalization dragged the global aggregate up by $132 billion.