After the strong performance recorded by the MSCI World Index during the second quarter of 2014, The third quarter was subdued and the Index declined slightly, providing a total return of -2.1% in USD terms. The backdrop of synchronised economic growth across the developed countries has faded somewhat, particularly in the euro zone. Activity in the peripheral regions has proven fairly lacklustre, while the mainstay of the European economy, Germany, has also begun to produce some disappointing economic activity releases. The deflation bogey continues to weigh heavily and it remains to be seen whether the ECM has the stomach to significantly accelerate stimulatory measures. China is still facing the challenge of rebalancing its economy from an investment driven one to a consumption led one, which will result in economic growth struggling to rise much above 7%. The one bright light is the USA, where the economic recovery, although muted, remains on track. GDP growth in Q2 was revised upward to 4.6%, from an originally estimated 4.2%, reflecting the second fastest rate of growth since the last quarter of 2011. The geo-political environment remains a cause for concern, as tensions in Ukraine, Iraq and the Gaza Strip remain. The impact of an ever-stronger ISIS on the future oil price is still highly uncertain.
Emerging markets are struggling to achieve any growth traction as developed economies struggle and the rampant USD causes commodity prices to decline. The impact of the tapering of the Fed's massive bond purchase program has worked its way through the system, although there is likely to be some reaction when the Fed starts raising interest rates, probably in Q3 2015.
Despite a lengthy period of good performance, valuations of global equities do not appear stretched and careful stock selection should still be able to provide acceptable returns going forward.

Following a pedestrian first quarter, during which it returned just 1.4% in USD terms, The MSCI World Index rose strongly during the second quarter, returning 5.1%. The synchronised economic growth in the developed countries continues, albeit at a below-par pace. The most recent estimate of Q1 GDP growth in the USA was quite a shock, coming in at -2.9%, reflecting the adverse impact of extreme weather conditions. More recent data releases have, however, been more encouraging, while the Fed's dovish stance should provide an underpin to the market. China appears to have averted a hard landing, but it remains to be seen whether the targeted growth of at least 7.5% will be achieved, or if this number will be closer to the 7.0% level. While Germany appears robust, the remainder of the euro zone is mixed, with the threat of deflation still hovering. To counter this, the ECB has introduced a number of measures in order to stimulate growth and stave off deflation. The backdrop of a deteriorating geo-political environment is cause for concern, as tensions in Ukraine, Iraq and the Gaza Strip remain. Global markets do not seem to have factored in any impact that may result from a major escalation of these tensions.

Emerging markets have weathered the storm arising from the tapering of the Fed's massive bond purchase program and, in most cases, have experienced an inflow of some of the funds that were previously withdrawn. Whether or not the recent rally in EM markets can continue is unclear, particularly given the muted outlook for resources.

Bond yields continued to decline in the second quarter, particularly in the euro zone where the spread on the debt of peripheral countries narrowed markedly. For the first time in many years, it appears as if the globe is at the start of a period of synchronised growth, particularly with respect to the developed markets, although the pace of growth is likely to be sub-par.

Despite a lengthy period of good performance, valuations of global equities do not appear stretched and careful stock selection should still be able to provide acceptable returns going forward.

Markets remained ebullient in the final quarter of 2014, the MSCI World Index returning 8.1% in Dollar terms for the quar-ter, bringing the total return for the year to 27.4%. Following the Federal Market Open Committee Meeting on 18 Decem-ber 2013, the view was expressed that the US economy seemed to be demonstrating underlying strength and that the "tapering" process would begin in January 2014. Following the shut-down of the US Government in the third quarter, a bipartisan budget agreement was passed by Congress which will avert further shut-downs in the near term.

The Chinese economy is likely to continue to slow going forward as the economy attempts to move to one driven by consumption rather than by investment, although the ruling party has expressed the view that economic growth is not likely to dip be-low 7.5%. The recovery in the Eurozone is continuing, although at a very slow pace. Without the ECB proving a shot of stimulus, this recovery is likely to take some time yet, leaving unemployment at elevated levels. Japan is feeling the im-pact of its stimulatory measures with both GDP growth and inflation coming back into the system. Further measures are likely to be brought in during 2014 which should help offset the impact of the impending VAT increase. Although the po-tential for inflation to rise has been a worry for some time, the low level of employment globally is likely to keep it in check for the foreseeable future.

Following the initial decline in bond yields when no tapering measures were announced in the third quarter, yields again started rising in October, closing the year at levels close to the highs of September 2014.

Although economies across the globe are moving at different rates, with many facing their own hurdles, the outlook does appear more positive than it has in some time. Despite the strong performance from global equities in 2014, careful stock selection should be able to provide acceptable returns going forward, albeit at a slightly higher level of risk.