The second quarter of 2012 has seen global markets return to a 'risk-off' environment, compared to the majority of the first quarter when markets were in a more positive 'risk-on' mode. The mood began to change in the middle of March as investors increasingly began to focus on the threats to global economic growth, and this continued into the second quarter. The catalyst for this renewed pessimism was once again events in the euro-zone, most notably focused on Greece, but investors were also concerned about softening economic data in the USA and whether the Chinese authorities would be able to deliver a soft landing. These issues in aggregation provided some significant headwinds, and ensured that global macroeconomic and political events continued to be the primary drivers of markets during the second quarter, rather than company specifics and fundamentals. With this negative backdrop, European equity markets, as measured by the MSCI Europe Index delivered a return of - 7.47% for the second quarter. However, this in itself disguised the nature of the quarter. Markets sold-off fairly persistently in April and even more so in May. This took European equity markets to levels not seen since the start of the year as markets decreased by more than -10% during the period. The heightened fear and genuine threat of a euro-zone break-up weighed heavily on investors and it was only during June, especially following the second Greek election in the middle of the month, that fears dissipated somewhat and equity markets started to rally. This saw the MSCI Europe Index rise by more almost 8% during June, and thus significantly reduced the effects seen over the quarter. It also meant that markets for 2012 year-to-date are back in positive territory.

2012 started with international investors clearly relieved that 2011 was over, and in turn this led to a more positive outlook for markets, as investors' confidence levels rose. While the first quarter of 2012 appears relatively dull from a news event perspective compared to the first quarter of 2011, there continue to be many issues facing markets during the period. The European financial crisis continues to dominate concerns. However, the effective introduction of quantitative easing and other liquidity packages within the euro-zone has been one of the significant factors alleviating investors' concerns. This has helped restore health, at least temporarily, in the European banking system. Given the market environment European equity markets, as measured by the MSCI Europe Index, started the year positively and produced a return of 10.66% for the first quarter. The quarter while appearing to be quite similar to that of the last quarter of 2011, was actually quite different; the fourth quarter of 2011 was in essence a rebound from the previous quarter, but the first quarter of 2012 was a rotational change in leadership. At the global level the quarter saw quite a clear distinction between those sectors in favour and those out of favour. This was broadly a classical mix of cyclical sectors doing well and traditional defensive sectors lagging significantly. Information Technology was one of the best performing sectors, alongside the likes of the Consumer Discretionary sector and even the Financials sector. Of the weaker sectors Utilities, Telecommunication Services and Consumer Staples have all been relatively weak. The traditional pattern has not been completely achieved as Energy and Materials as more cyclical sectors have not performed as well as one would expect in the 'risk-on' market environment of the first quarter.

The last quarter of 2011 remained very similar to the third quarter in terms of market sentiment, with the European crisis continuing to be the focus of attention. The twists and turns, largely predicated on market expectations of an announcement of a solution by European governments, dominated the period. This continued to create market uncertainty, as investors looked to the politicians to restore confidence. Europe was not the only market facing problems as the USA continued to pose a threat of returning to a recession. Meanwhile, slowing growth in China was the centre of attention in the emerging markets..
For the quarter European equity markets, as measured by the MSCI Europe Index, rose 5.39%. This however, has to be seen in the context of the third quarter when markets fell over -22%. The fourth quarter started with markets gaining over 12% in October, although this was the bounce from the lows seen in the third quarter. In contrast November was a weak month as markets once again sold-off, though the rally towards the end of the month meant that the index only finished -4.5% lower. December did see some market volatility, but as the end of the year approached markets rallied to finish the month almost close to where it had started. As for 2011 as a whole European equity markets finished - 11% down.