Despite upturn, American families cut down on their portfolios, scared by the volatility.
NEW YORK: Global stock markets closed the year 2012 on a strong note with the U.S., Japan, India, and Hong Kong delivering more than 10 percent gains. Even in Europe, stocks have given decent returns to investors in 2012 despite uncertainty continued to hurt the sentiments. Will this bring back investors, who left the stock market following the financial imbroglio that struck a lethal blow on investors’ sentiments, dragging the world into a recession?
The US stock markets led the global scene with the S&P 500 gaining 13.4 percent, while the NASDAQ gave a much higher return of 15.9 percent. However, the 30-share Dow Jones Industrial Averages advanced only 7.3 percent in 2012. The S&P 500’s performance is the best since 2009. Technology bellwether and investors’ favorite stock, Apple shares, played a significant part in lifting the indices. The stock has given a 31.7 percent return in 2012 alone though it closed over 20 percent below its peak level.
However, it was the financial sector that performed creditably not only in the U.S. but also in India. S&P 500’s financial index edged up by 26.3 percent. This is driven by Bank of America stock that more than doubled. Similarly, Citigroup shares jumped over 50 percent, while JPMorgan Chase advanced more than 32 percent. Similarly, the strong performance of auto sector has allowed General Motors to gain 42.2 percent in 2012.
The gains from the stock markets came against odds such as continuous uncertainty clouding the global economy, the threat of double-dip recession, slower growth of China and the debt crisis in the European Union threatening to percolate, and the soundness of the financial system that exist the world over currently.
Most of the S&P’s ten sectors in the U.S. bourses ended positively, whereas the Utilities sector suffered a loss of 2.9 percent. Energy and Consumer Staples sector alone provided a single digit return of 2.3 percent and 7.5 percent respectively, while the other 7 sectors have all delivered in excess of 10 percent returns.
The housing sector too rebounded strongly in 2012, yet below the peak witnessed four years back. The recovery in the housing market boosted investors confidence in the housing stocks such as Pulte Group and KB Homes that witnessed more than doubling of the price. The improved job market despite structural issues, improved consumer confidence, lower interest rates, and the QE3 have all played favorably in lifting the sentiments.
However, it was distressing that some investors remained on the sidelines even as the markets were recording gains. The widespread dissatisfaction could be seen from the way the number of American families holding stocks slumped to below 50 percent compared to over 53 percent in 2001. Similarly, only 25 percent of the Americans with retirement plans were ready for above-average risk versus 33 percent in 1998.
The fact that the U.S. stock markets provide necessary directions to its peers globally could be seen from the way the other markets have performed. Despite the European Union facing serious debt issue, German’s Dax surged 29.1 percent, while France’s CAC 40 advanced 15.23 percent. The United Kingdom’s FTSE 100 also closed the year with a gain of 5.8 percent.
The performance of major European stocks was certainly a heartening one especially in the wake of reports indicating a debt crisis percolating from one or the other countries from the region impacting investors’ sentiments. The global markets gain in 2012 has also led analysts and economists to term that the markets are ready to live in an uncertain conditions and still post profits.
Similarly, in Asia, except China, other nations such as India, Japan, and Hong Kong’s indices have jumped more than 20 percent. Japan, which was impacted by the tsunami in 2011, returned to deliver a gain of 22.9 percent. Hong Kong’s Hang Sang also posted a similar gain of 22.9 percent.
The second largest economy in the world, China, could see its stock market advancing only 3.2 percent. This is probably due to slower growth, below than expected economic numbers and the change of guard in the policy making level prompting investors to be cautious.
Another big tiger from Asia, India has satisfied the confidence reposed by investors. India’s gain ranked third after Thailand and German’s indices benefits. The BSE’s 30-share index Sensex jumped 3,971.79 points or 25.7 percent to close the year on a buoyant note at 19,426.71. Similarly, the National Stock Exchange’s Nifty climbed 1280.8 points or 27.7 percent to end the year at 5905.1.
One of the reasons for the Indian stock markets to jump significantly was the foreign institutional investors’ appetite for Indian equities. They have pumped in about $24 billion in 2012 alone. Aside from this, domestic funds have also supported the market rally.
The Indian stocks were in a more or less slumbering mode until the government woke up to push the reform process in September obviously hurt by the policy paralysis charge leveled against it both by the opposition political parties and the corporate world. First and foremost was the holding back of tax on FIIs. This is followed by foreign direct investment in retail and aviation sectors.
However, the interest rates continue to play a truant in investors’ sentiments. While the government wanted the Reserve Bank of India to cut interest rates to stimulate economic growth, the RBI is firm on government taking concrete steps to cut the fiscal deficit and bring down the inflation.
Financial stocks dominated the year with the private sector banks such as ICICI Bank, Axis Bank, HDFC Bank, and Kotak Mahindra Bank recording more than 40 percent gain. These banks were also among the top ten performers in 2012. The NSE’s CNX Bank Nifty index delivered 55 percent gain. Similarly, infrastructure finance lender IDFC topped with a return of 88 percent.
Realty and FMCG are the other two top sectors-wise performers. While the BSE’s realty index jumped 53 percent, automobiles and consumer durables indices climbed more than 40 percent. Tata motors, JP Associates, Maruti Suzuki and L&T were among the favorite stocks of investors vaulting above 60 percent.
The worst sector performers were oil & gas and energy due to government’s unwillingness to hike prices, while IT was neglected as a fall out of a slowdown in spending in the U.S. Infosys is the biggest disappointment losing investors’ confidence.
Looking ahead for the year 2013, the current indications suggest that the global stock markets could continue to post gains. While Indian markets will be driven by domestic push for reforms and expected interest rate cuts in January, the U.S. market is likely to be cushioned by the favorable fiscal cliff deal and the Federal Reserve’s willingness to keep the interest low as long as the economy needs. However, slower growth cannot be ruled out on the uncertainty clouding the European Union.