Overview

January 2012 (covering December 2011)

The eurozone debt crisis continued to dominate stock market headlines for December, as it had done for much of 2011. Most significant of these was the European Central Bank’s decision to bolster European bank funding by offering longer term loans and halving its reserve requirements for such loans. While the move was generally seen as positive, performance amongst European equity indices appeared mixed. The Swiss stock market, led higher by pharmaceutical giants Roche and Novartis, was one of the best performers, while Russia, dragged lower by political tensions, registered double digit losses in December. Elsewhere, the US equity market managed to shake off eurozone woes and end the month in positive territory. Continuing upbeat economic data, including better news on employment, together with a rebound in business confidence, helped make it one of the best performing stock markets globally for 2011.

By contrast, India’s equity market registered another negative month, making it one of the worst performing stock markets for the year. While the Chinese equity market responded positively to lower inflation and possible looser monetary policy in 2012, it also lagged for the year as a whole. On a more positive note, equity markets in Taiwan, the Philippines and Thailand all registered gains for December, helped by their ability to bring inflation under control. The Japanese equity market remained broadly unchanged while, in North Korea, the death of leader Kim Jong-il reawakened the possibility of political tensions with South Korea. This, combined with deteriorating economic data, weighed modestly on the Korean equity market.

US

• US unemployment rate drops to a two-year low of 8.6%
• US purchasing managers’ index reverses its downward trend
• The US Federal Reserve keeps lending rates on hold

Europe

• Standard & Poor’s and Moody’s place eurozone countries on negative watch
• ECB introduces 3-year loans which are well received by stock market
• Healthcare best performing sector over month

UK

• UK stock market rallies in December, although ends the year down
• November retail sales fail to dispel high street gloom
• Inflation falls for second successive month

Asia Pacific

• Chinese equities gain on lower inflation and further policy easing potential
• India continues to struggle with slowing growth and high inflation
• Japanese economy starts to feel impact of disruption caused by Thai floods

Emerging Markets

• Emerging Asia is the regional winner in terms of performance
• Country returns broadly negative across Latin America, with the exception of Colombia and Chile
• Concerns over eurozone continue to weigh on sentiment in emerging Europe

Fixed Interest

• New support measures announced by European authorities
• US economic data still relatively positive
• Credit spreads modestly tighter in most sectors

Where Invesco has expressed views and opinions, these may change.