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Friday 1 August 2014

Stocks beat bonds and commodities for returns

Global equities rise as central banks prime the money markets

Charlie Weston Personal Finance Editor

Published 02/01/2013|05:00

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GLOBAL share prices surged last year to such an extent that they outdid returns on commodities and bonds.

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Ireland was one of the countries to benefit from a surge in share prices, with the ISEQ index jumping by 17pc last year.

The rally in equities was helped hugely by central banks around the world buying bonds in the market, and the actions of central bankers in keeping interest rates at the lowest levels they have ever been at, analysts said.

European Central Bank president Mario Draghi committed to doing "whatever it takes" to save the euro.

The MSCI All-Country World Index of equities increased 16.9pc in 2012, including dividends after climbing 2.3pc in December, Bloomberg reported.

The news agency said the rally in global stocks followed a 6.9pc slump in 2011.

The MSCI Global Index, which tracks companies in 45 developed and emerging markets, trades for 15.4 times reported earnings, or about 26pc below its historical average of 20.7, according to data compiled by Bloomberg from 1995.

The European Stoxx 600 Index, which tracks the region's 600 biggest companies, rose 14.4pc.

In the Asia Pacific region, the MSCI Index gained 13.6pc and the MSCI AC Asia Pacific Excluding Japan Index added 18.6pc.

In the US, the Standard & Poor's (S&P) 500-stock Index climbed 13.4pc in 2012.

The Dow Jones industrial average rose 7.3pc and the Nasdaq Composite surged 16pc.

Among the main reasons for the share surge was the efforts by central banks to stimulate the economies they are responsible for, experts said.

James Dunigan, who helps oversee $112bn as chief investment officer in Philadelphia for PNC Wealth Management, told Bloomberg: "The massive global stimulus has been a big piece of it. That had a big impact on reducing the fears of a recession. There was also the support from the corporate earnings side. It was just a matter of time to have stocks outperforming."

US Federal Reserve chairman Ben Bernanke and ECB president Mario Draghi pledged bond purchases amid the slowest global economic growth since 2009.

Expansion

The world economy is estimated to have expanded 2.2pc in 2012, according to the median estimate from economists surveyed by Bloomberg. GDP may increase 2.4pc this year, the projections show.

Bernanke said in September that the US central bank will buy mortgage securities until the labour market recovers.

The ECB announced a plan that involved unlimited purchases of government debt to reduce borrowing costs in the euro region.

Draghi, fighting to keep the currency union intact, has also cut the benchmark interest rate to a record low of 0.75pc, while the People's Bank of China lowered its rate to 6pc.

Last year saw Germany's Dax jump 29.2pc, France's CAC 40 added 15.2pc, the UK's FTSE 100 rose 5.8pc, Italy's FTSE MIB gained 7.8pc and Spain's IBEX 35 dipped 4.7pc.

The Athens Stock Exchange General Index jumped 33.4pc and Denmark's OMX Copenhagen Benchmark Index rose by 26.9pc in 2012.

Irish Independent

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