Global equities perform strongly

Share prices performed strongly over September as a whole as the MSCI World index rose by 9.1% in US dollar terms over the month, and by 13.2% over the third quarter of 2010. The UK and US both performed strongly although Japan lagged other major markets.

Even so, investors remained uncertain, and this cautious mood was well illustrated by the price of gold, which reached record highs during September as investors sought safe havens for their money. Meanwhile, the Organisation for Economic Co-operation & Development downgraded its forecast for economic expansion in the G7 countries – it now expects growth to reach 1.5% during the second half of 2010, compared with its previous forecast of 2.5%.

US equities posted robust gains during September. Demand for medium-sized and smaller companies was particularly strong, suggesting investors have become somewhat more sanguine about the prospects for the domestic and global economic recovery. Nevertheless, optimism remains tempered by concerns over a feeble housing market and relentlessly high unemployment.

In the UK, gains were also fuelled by a renewed appetite for medium-sized and smaller companies as investors became a little more hopeful about economic prospects. Nevertheless, sentiment remains fragile amid ongoing concerns over Government spending cuts. The Confederation of British Industry believes the UK economy will expand more slowly than expected during 2011 as public spending cuts get underway.

Europe continues to look like a region of two halves. Germany in particular looks increasingly robust, underpinned by rising consumer and business confidence and a declining rate of unemployment. At the other end of the spectrum, however, some countries in the region continue to look distinctly shaky. Ireland stole much of the limelight during the month as the government announced its plan to take majority ownership of Allied Irish Banks. Elsewhere, Greece’s economy contracted by 1.8% during the second quarter.

Share prices in Japan ended the month in positive territory but could not match returns from many other leading markets. Investors remain concerned about the power of the economic recoverywhile, the yen’s sustained strength continues to preoccupy Japan’s exporters. Looking ahead, the quarterly Tankan survey indicated Japanese companies have become increasingly pessimistic.

According to a recent study by the World Economic Forum, Switzerland held its place as the world’s most competitive economy, followed by Sweden and Singapore. The US fell to fourth place, having lost the top spot in 2009, while the UK rose one position to 12th place.