Global Stocks Erase 2014 Losses as $3 Trillion of Value Restored

Feb 18, 2014 3:50 am ET

Feb. 18 (Bloomberg) -- Global stocks erased their losses for the year as growing confidence in the U.S. economy and a rally in emerging markets restored $3 trillion of value.

The market capitalization of shares climbed to $62.1 trillion yesterday, exceeding its level at the end of December and rebounding from this year’s low of about $59 trillion on Feb. 4, data compiled by Bloomberg show. The MSCI All-Country World Index advanced for a 10th straight day, paring its 2014 decline to 0.7 percent at 8:44 a.m. in London.

Stocks have rebounded from the worst start to a year since 2010 after American unemployment fell to the lowest level since 2008, Chinese trade increased and developing nations from Turkey to South Africa took steps to stem capital outflows. Equity funds tracked by EPFR Global and Citigroup Inc. lured more than $11 billion in the week to Feb. 12, led by the U.S. as Federal Reserve Chair Janet Yellen said economic growth has picked up and pledged to pare back stimulus in “measured steps.”

“The recent correction gave investors a great buying opportunity,” said Nader Naeimi, the Sydney-based head of dynamic asset allocation at AMP Capital, which manages about $131 billion. “This rally is sustainable on the back of the improving global economy. There are signs the ongoing recovery in the developed world is starting to flow into developing economies like China.”

Bull Market

Italy’s FTSE MIB Index has led gains among equity gauges in the world’s 20 largest markets in 2014, climbing 8.2 percent as data showed the euro-area economy expanded more than forecast in the final quarter of 2013. The Standard & Poor’s 500 Index, the benchmark measure of U.S. stocks, slipped 0.5 percent this year through last week, with American markets closed for a holiday yesterday. The Shanghai Composite Index added 0.2 percent.

The MSCI All-Country index has been in a bull market since October 2011, advancing without a 20 percent retreat for 868 calendar days, according to data compiled by Bloomberg. That’s approaching the historical average of 874 days for bull rallies since 1987. The index is valued at about 14 times estimated earnings for the next 12 months, versus its five-year average multiple of 12.

Asset prices aren’t at “worrisome levels,” Yellen said in remarks to the House Financial Services Committee this month, although the Fed is on the lookout for any threat of a bubble. The U.S. central bank said in December that it would start reducing the monthly pace of asset purchases, citing progress toward its goal of full employment. It announced a $10 billion reduction that month, followed by a cut of the same size in January, to $65 billion.

Emerging Growth

While reduced U.S. stimulus helped spur a rout in developing-nation currencies and sent the MSCI Emerging Markets Index of shares down as much as 8.6 percent this year, asset prices in the countries have rallied during the past two weeks.

Turkey, South Africa and India have all raised interest rates to support their currencies, while Indonesia attracted $342 million of equity inflows in the past nine days amid data showing faster-than-estimated economic growth and speculation that the country’s current-account gap will narrow.

“There’s a feeling that although there’s been signs of weakness in various economies, it’s not enough to make people think that they are entering a bear market,” said Peter Elston, the Singapore-based head of Asia-Pacific strategy at Aberdeen Asset Management Plc, which oversees about $321 billion.

Initial public offerings have also helped boost the value of listed shares. Companies worldwide have sold about $6.8 billion of new equity since Feb. 4, bringing the amount raised through IPOs this year to about $19 billion, according to data compiled by Bloomberg.

U.S. Outlook

Slowing growth in emerging economies may continue to weigh on markets this year, said Tim Schroeders, a money manager who helps oversee about $1 billion in equities at Pengana Capital Ltd. in Melbourne.

The International Monetary Fund cut its outlook for expansion in Brazil and Russia last month and said financial- market volatility in emerging markets is a downside risk for the world economy. China drained funds from the banking system today, sparking declines in the nation’s stock market amid concern that tighter liquidity will restrain growth in the biggest developing economy.

“An increased focus on risk is appropriate given the gains that have been locked away,” Schroeders said.

Japanese shares led gains in Asia today, with the benchmark Topix gauge advancing 2.7 percent after the nation’s central bank stuck with a plan for unprecedented asset purchases and boosted lending programs. The Topix is still down 6 percent this year, following a 51 percent jump in 2013.

Still Bullish

Fourth-quarter gross domestic product in the euro zone rose 0.3 percent after a 0.1 percent increase in the third quarter, the European Union’s statistics office in Luxembourg said this month. That beat the median forecast of 0.2 percent in a Bloomberg News survey of 41 economists.

“The global economy is still expected to be reasonably solid,” said Khiem Do, the Hong Kong-based head of Asian multi- asset strategy at Baring Asset Management, which oversees about $60 billion.

In the U.S., signs of rising consumer demand are boosting corporate revenue and fueling gains in stocks. S&P 500 companies beat analysts’ sales predictions by 1.2 percent so far this earnings season, the widest margin in almost two years, according to data compiled by Bloomberg. Economists have raised their economic growth estimate to 2.9 percent in 2014 from 2.6 percent at the start of the year.

“As long as the U.S. stays on track, then things will be alright on a macro level,” said Kelly Teoh, a Singapore-based strategist at brokerage IG Ltd. “I’m still bullish on equities.”

--With assistance from Jonathan Burgos in Singapore. Editors: Michael Patterson, Richard Frost