It Pays to be Selective
Global equity markets rebounded strongly in the second quarter as investors watched for positive news on the COVID-19 pandemic and looked through deepening economic turmoil. Despite ongoing uncertainty, nearly all sectors in the MSCI All Country World Index recorded double-digit returns.
U.S. equities led the global rebound, thanks to rapid and extensive fiscal and monetary stimulus. By June, Congress’s initial $2 trillion fiscal support package had grown to over $3 trillion. The Federal Reserve, meanwhile, pledged unlimited support for the economy, increasing its balance sheet to over $7 trillion as it bought up Treasuries and corporate bonds. At the same time, it indicated that interest rates could stay close to zero through 2022. As U.S. equities climbed, the economy continued to struggle. By quarter end, however, several economic indicators started to improve as some lockdown measures were gradually lifted and the economy started to reopen.
In Europe, stimulus measures flowed at the domestic level as well as the European Union level. Large fiscal packages from France and Germany were met by the extension of the European Central Bank’s bond-buying program. At the same time, the European Union proposed a €750 billion crisis recovery fund to help the bloc’s worst-hit countries. The plan met criticism from the EU countries resistant to large-scale borrowing, but was broadly welcomed by markets as the STOXX® Europe 600 Index reached a three-month high in June.
MSCI All Country (AC) World measures equity performance of developed and emerging markets. MSCI EAFE® measures developed foreign market equity performance, excluding the U.S. and Canada. MSCI Europe measures equity market performance of Europe’s developed markets. MSCI Japan measures performance of the Japanese market’s large and mid-cap segments. MSCI AC Asia Pacific ex Japan measures equity market performance of Asia’s developed and emerging markets (excluding Japan), Australia and New Zealand. MSCI Emerging Markets measures equity market performance in global emerging markets. MSCI AC World ex US measures equity performance of developed and emerging markets, excluding the U.S. S&P 500® measures performance of 500 of the largest U.S. companies. The STOXX® Europe 600 Index represents large, mid and small capitalization companies across 17 countries of the European region: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland, and the United Kingdom. All indexes are free float-adjusted market cap-weighted and calculated on a total return basis with dividends reinvested.
The commentary is the opinion of Vontobel Asset Management. This material has been prepared using sources of information generally believed to be reliable; however, its accuracy is not guaranteed. Opinions represented are subject to change and should not be considered investment advice or an offer of securities.
Past performance is not indicative of future results.
All investments carry a certain degree of risk, including possible loss of principal.