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While global equity markets have slightly improved this year a full recovery of the markets and the economy is not expected any time soon. Since September 15, 2008 the Dow Jones Global Titans 50 fell 21.10%, while year-to-date the index is up 0.09% through June 15, 2009.
The economy will remain challenged throughout 2010 and recovery could be impacted by various factors and developments according to a panel of leading economic and market experts hosted by Dow Jones Indexes this morning in London.
Public debt could slow economic recovery in US and UK
“Globalization was beneficial for both developed and especially emerging market economies over the decade to 2006. But the last two years have shown that globalization also has a dark side as it allowed the build-up of large global trade imbalances and corresponding capital flows from the East that help to inflate unsustainable credit and housing market bubbles in the West. Once the crisis hit in the U.S. housing market initially, globalization of financial markets also meant that the credit crunch virus spread very rapidly around the world,” said John Hawksworth, head of macroeconomics at PricewaterhouseCoopers LLP. “Looking ahead, we expect a fall of around 2.5% in world GDP in 2009 but then a modest recovery to global growth of around 1% in 2010, led by China and India. I am more cautious about the prospects for Europe, including the euro zone countries for which we project a fall in GDP of more than 4% in 2009 followed by continued negative GDP growth of around -0.5% in 2010. In the longer term, the need to deal with rapidly increasing public debt will weigh down on the speed of economic recovery in the U.S., the U.K. and other high deficit countries and could also dampen the return on government bonds relative to equities over the next few years,” he said.
Long term trend towards global products
“Eurex has been experiencing increasing ability and willingness by clients and market participants to seek global opportunities. While volume in truly global contracts is still small, in the moment we see increasing assets under management in products such as global exchange-traded funds. Therefore we are convinced that products like Dow Jones Global Titans 50 futures can flourish,” said Brendan Bradley, global head of product strategy, Eurex. “We expect market participants to bi-laterally agree to deals that give global exposure and report the transaction to Eurex for clearing purposes, thereby mitigating the counterparty credit risk,” he added. As a trend towards globalization Mr. Bradley further cited Eurex’ experience with the development of the Dow Jones STOXX sector business from a euro zone to a pan-European demand to which Eurex reacted by introducing global sector products last year.
Emerging markets to do better than developed economies
“The long term outlook is for the economies and markets of emerging countries to continue to out-perform developed countries, the problems of which include large fiscal deficits, the threat of inflation and inflexible economies. This out-performance is not reflected in the asset allocation of the typical OECD-centric investment institution. However, we believe that a long equity up-cycle started earlier this year and that, over the next ten years, equities will out-perform government bonds by a wide margin, despite the continuing economic problems” said Max King, portfolio manager and strategist, Investec Asset Management.
The Global Markets Panel was hosted by Dow Jones Indexes today to commemorate the 10th anniversary of the Dow Jones Global Titans 50 Index. The index was launched in July 1999 and represents the largest multinational companies worldwide. The Dow Jones Global Titans 50 Index is available in price and total return versions, and calculated in U.S. dollar. It is reviewed annually in June. The index is weighted by float-adjusted market capitalization, and each component's weight is capped at 10% of the index's total free-float market capitalization.
