Global equity markets experienced a continuation in the rally that took hold towards the end of the first quarter. During the three-month period, the MSCI World (Developed Markets) Index rose by 17.45% in dollars. While not as substantial as the market gains seen during the second quarter, this was still a significant return for a quarterly period. After a slight pause in June, the market roared back in July by 8.5%. In August and September, the market rose by 4% in each month. Despite a torrid start to the year, the market is now up almost 25% year to date, having risen in six of the past seven months.

As stocks continued to climb off their bear market lows during the third quarter, gains by many established European markets outpaced the previous quarter, while some emerging markets rose at a slower rate. In the UK, Germany and France, equity markets finished the quarter higher despite choppy periods. In local currency terms, France's CAC-40 and UK's FTSE 100 were each up 21% after rising 12% and 8% respectively in the second quarter. Germany's DAX added 18%, roughly equivalent to the gains made during the second quarter. .

The second quarter of 2009 saw markets delivering stellar returns across the board, albeit from a relatively low base. Since the lows of March 2009, the rise in global equity markets and the narrowing in credit spreads has considerably cheered the mood. US Treasuries, the global safe-haven, retreated at a record pace as the MSCI World Index (Developed Markets) surged more than 40% from the March lows (21% for the quarter). Most global market indices notched up multi-year record quarterly returns during the period. The rally did slow towards the end of the quarter, as some concerns regarding the general state of the global economy were reignited. That said, business surveys and real economic data did indicate the world economy is stabilising following precipitous falls in gross domestic product (GDP) in the final quarter of 2008 and first quarter of 2009. Admittedly, there are still many weak points, including the US housing market, where house prices continue to decline against the backdrop of a still elevated inventory level. Analysts are raising concerns that the recent rally has run ahead of a potential global economic recovery. The third quarter earnings season will be closely watched for some guidance on the direction of the markets for the rest of the year. All the major European indices returned more than 10% for investors, with France's CAC 40 and the Swiss SPI General indices at the lower end of the scale. The German composite DAX had a great quarter, with growth of nearly 20%, and most of the smaller European indices (Denmark, Finland, Sweden, Spain, etc) ended notching up more than 20% for the quarter, with the exception of Belgium's Bel 20 Index. The UK markets had a relatively subdued quarter, with the FTSE 100 rising around 8%. It lagged the rest of the world because of the release of negative economic growth figures and a warning that the UK might face a credit downgrade.

The first quarter of 2009, has seen the equity bear market continue with a sixth consecutive quarterly fall in equity markets. The MSCI World (Developed Markets) Index fell -11.92% , making it one of the worst starts to a year, and worse than that of the first quarter of 2008. In addition, this is the third consecutive quarter when equity markets have fallen by more than -10%, which indicates the depth and strength of the current bear market. The intraquarter picture leaves only a slightly more positive picture, but with it is a glimmer of hope for the end of the bear market. January and February both saw substantial market falls, with returns of nearly -9% and just over -10% respectively. However, March saw the market record a strong positive return, the strongest since April 2003, with a rise of just over 7.5%. During the quarter the equity market surpassed the lows seen in the last quarter of 2008, but the market has subsequently risen strongly off these lows.

Continental European equities underperformed the rest of the global market in the first quarter, with the MSCI Europe Index declining 14.5%. European markets have been hurt by perceived slower responses to the global credit crisis from governments and the European Central Bank, as well as by weaker economic data, particularly retail sales and consumer spending. Markets were also hurt by the relative strength of the Euro.

In the fourth quarter of 2008, the MSCI Europe Index fell by 22.8% in dollar terms, the biggest quarterly decline since the third quarter of 2002 despite a rally of 5.3% in December. Leading the equity markets down over this quarter were financials, which declined by 38.16% despite the unveiling of unprecedented rescue plans by governments across the globe. Not surprisingly the more defensively positioned sectors fell less, with telecoms declining the least at -7.57% and health care down 9.42% for the period under review.
Third-quarter economic activity in Europe generally contracted much faster than had been anticipated, with declines spread across all sectors and the only bright spot being government spending. Both Germany and France officially moved into recession and in the UK the economy contracted by 0.5% in the third quarter. Consumer and business confidence indicators hit lows not seen since the 1990s.
The deterioration in the economic outlook across Europe led the European Central Bank to cut its main policy rate three times during the quarter to 2.5% and the Bank of England to cut its base rate to 2% - equal to the lowest rate since the Bank of England was founded over 300 years ago.
To compound Europe's problems, the euro hit a trade-weighted high in December, rising by more than 10% in the last two months of the year and closing only modestly lower against the dollar after a roller coaster year.