The third quarter of 2011 has been a very challenging environment for global equity markets. A renewed sense of fear and panic has dominated investor sentiment and led to an atmosphere that can only be described as similar to that of the last few months of 2008. The market's heightened concern has primarily originated from the European sovereign debt crisis, which towards the beginning of the quarter was once again firmly focused on Greece. However, concern has spread throughout the euro-zone and significant attention has now turned to Italy. The euro-zone crisis has also been coupled with a noticeable deterioration in economic growth, not just in the euro-zone, but crucially also in the USA and other developed markets. This has led many commentators to resurrect the possibility of a "double-dip" recession, and consequently investors have significantly reduced their expectations for corporate earnings, leading to equities being heavily sold off, and indiscriminately at times.

For the quarter, global equity markets, as measured by the MSCI World Index, produced a decline of -16.61%. This was the worst quarter since the last quarter of 2008 and even surpassed the decline of the third quarter of 2008. Consequently, this last quarter is the third worst quarter for global equity markets since the turn of the century. The market had previously seen falls in May and June, and this continued into July, when the market declined by almost -2%. It was in late July and early August, that investor sentiment swiftly and suddenly turned sharply more pessimistic leading to a decline of over -7% in August. Unfortunately things did not improve, and contagion fears spread and led to a fall of over - 8.5% in September. At the regional level no market has been immune to the global sentiment, with the European region falling by almost -23%, while the Pacific excluding Japan region fell by nearly -20%. The North America region declined by around -15%, while in relative contrast Japan, which is rebuilding post the earthquake earlier in the year, decreased by around -6.5%.

The second quarter of 2011, although unable to match the extent and diversity of events during the first quarter, was nonetheless an interesting quarter in its own right. From a global perspective it was the renewed focus on the European sovereign debt crisis which was most noticeable. Ireland and other peripheral countries had further issues to address, but it was Greece, once again, that has been hit hardest. The situation in Greece and potential for default, led to concerns throughout the European banking system, which in turn led to the global equity market selling-off heavily during June, only to bounce back strongly towards the end of the month - once the Greek government had successfully passed the required measures.

For the quarter as a whole, global equity markets, as measured by the MSCI World Index, managed to post a positive return of 0.47% (in US dollar terms). This however disguises the nature of the quarter, which saw markets rise by over 4% in April, only to sell off in May and the majority of June, before sparking a significant rebound. However, the rally was not enough to produce a positive return in June, when markets fell by nearly -1.6%. From a regional standpoint deviations were not as large as in recent previous quarters: Europe led the way rising 2.4%, while Japan just delivered a positive return, and the Pacific excluding Japan and North America regions both declined very slightly, but both by less than -0.5%. For the quarter Emerging Markets under-performed the Developed World with a decline of -1.15%. Looking over the first half of 2011 Emerging Markets have only delivered nearly 1%, while Developed Markets have risen over 5%.

All performance figures are quoted in US dollar terms unless stated otherwise..

The first quarter of 2011 has been one of the most eventful quarters of recent times. The extent and diversity of news that the market has had to digest has been substantial. Any one of these events mentioned earlier would have been significant in isolation, but to have all of them in one quarter is indeed remarkable, and this is to say nothing of the traditional considerations that impact equity markets, inflation, GDP growth, corporate earnings, etc. And then finally, there is the rise in the oil price during the quarter.

Despite all this news flow, global equity markets have managed to post a health return over the period. For the quarter, the World (Developed Markets) Index rose by 4.80%. While the absolute level of return may not be impressive, and is easily overshadowed, even just by the last quarter of 2010, what is impressive is that the market has continued to rise in spite of all these events. The persistence of the market to push higher has been seen throughout the quarter. January and February both saw markets close higher, while March did see global markets decline slightly, but this was primarily due to the falls seen in the Japanese market over the month - those in turn being a direct consequence of the Japanese earthquake, tsunami and nuclear events. At a regional level therefore it is no surprise that Japan was the weakest market over the period, declining nearly 5%. However, the other major regional markets all posted positive returns, with North America rising nearly 6% and Europe rising nearly 6.5%. Emerging Markets also delivered positive returns, but underperformed Developed Markets, with a return of only just over 2% for the period. All performance figures are quoted in US dollar terms unless stated otherwise.

The fourth quarter of 2010 saw the continuation of the market rally that started back in July. For the quarter, the MSCI World (Developed Markets) Index rose by 8.95%. While this did not match the double-digit return achieved in the third quarter, the strength of the market recovery has clearly been evident over these past two quarters, despite markets retracing most of the second quarter losses during the third quarter. As measured by the MSCI World Index, equity markets rose 11.76% during 2010 as a whole.

This return was achieved notwithstanding the market's risk-on risk off alternating sentiment during 2010. While equity markets did not deliver the same high returns experienced during 2009 last year or the falls of 2008, its performance was similar to the 9% delivered in 2007. This recovery thus occurred in spite of the ongoing concerns and events related to the credit crisis, as witnessed in Greece's woes, which spread to other peripheral countries in the euro-zone and ending in Ireland's bailout in late November. These issues have not yet been fully resolved, but policymakers have stepped up to the plate during 2010 to address the issues facing them. This calmed markets, even if it be only temporarily, before renewed concerns emerged elsewhere and investor confidence was once against tested.

From a regional perspective, all regions posted positive absolute returns over the fourth quarter and for the year as a whole. However, the problems in Europe are clearly evident in their equity market performances. Whereas other regions posted double-digit returns for 2010, European performance came in at less than 4%. Given better economic growth prospects, the Pacific excluding Japan region was the best performer, with equity markets rising nearly 17%, which was slightly slower than the Emerging Markets universe's 19% rally. North America rose more than 15% as did Japan. In local currency terms, however, Japan only rose about 0.6% for the year, indicating that currency was responsible for the majority of its dollar-denominated return. On this basis, Europe fared better rising nearly 7% in local currency terms, and actually outperformed the Pacific excluding Japan region.

All performance figures are quoted in US dollar terms unless stated otherwise.