Global market rally indicates growing consumer confidence over China

23rd April, 2019 12:14:32 printer

BEIJING: Over the past month, global equities consolidated 2019 gains. This was primarily driven by the fading of trade-related geopolitical risks, initial signs that growth in China is stabilising and central banks across the world turning more supportive of risk.

Overall, the MSCI All Country World index gained 3.1 per cent over the month to extend its year-to-date gains to 14.5 per cent. The rally was broad based with all major sub-indices closing in positive territory. The MSCI G7 index, the MSCI Emerging Market index and the MSCI Frontier Market index added monthly gains of 3.2 per cent, 3.1 per cent and 0.1 per cent, respectively, report agencies.

Chinese equities continue to be at the forefront of this rally. The Shanghai Composite index gained 5.4 per cent to take its year-to-date gains to 31.2 per cent. The rally is indicative of growing confidence among investors that the stimulus provided by the Chinese government will support the economy and an anticipation that a trade deal with the US is within reach. Within the Mena region, the DFM index (up 6.5 per cent) and the Tadawul (up 6.2 per cent) saw renewed investor interest.

One surprising feature of the rally in 2019 so far has been the absence of volatility across markets. The VIX index (US) is currently at levels last seen in September 2018. Since the start of the year, the VIX index, the V2X index (Europe) and the VXEEM index (EM) have dropped 52 per cent, 53 per cent and 38 per cent, respectively.

The consensus among investors remains that we are in a late-cycle of growth, with the divergence of opinion seeming to be about the length that this late-cycle will extend. It is worth highlighting that equities tend to outperform during late cycles.