source: http://www.fundsupermart.com/main/research/viewHTML.tpl?articleNo=5074
1Q 2011 got off to a good start for investors as most equity markets extended 2010’s spectacular year-end rally. However, the markets encountered severe turbulence as a flock of black swans roiled the markets. The natural disasters afflicting Australia (floods and a hurricane) and Japan (earthquake and resulting tsunami) were just those consisting of natural phenomena or events.
The natural disasters affecting Australia resulted in commodity prices rising as several mines were closed and crops were destroyed in Queensland and Victoria. Lost coal production is expected to cost approximately AUD6 billion while crop damage is estimated to be worth close to AUD2 billion according to Treasurer Wayne Swan.
On the 11th of March, Japan suffered its largest earthquake to date (9.0 on the Richter scale) which triggered a resulting tsunami which surged past the world’s most advanced water barriers, laying waste to almost everything in its path and causing massive devastation currently estimated to be as much as USD299 billion according to the Japanese government. The directly impacted prefectures in the North-Eastern region where the tsunami struck were predominantly agricultural, forestry and fishing-based in nature. Thus, although the region is currently in tatters and the threat of nuclear plant meltdown lingers, the damage done to the Japanese economy could have been much worse, as the manufacturing precincts were spared.
Of those created by man, the turmoil in the Middle East and North Africa (MENA) is one of the events that come foremost to mind. With protests and violent demonstrations plaguing the region, hardmen such as Hosni Mubarak have been forced to resign, something which was un-thought of prior to the recent happenings. The civil war in Libya currently shows no sign of abating despite intervention by US and NATO through a coordinated military air campaign, aimed at forcing Gadaffi’s resignation.
The equity markets of Taiwan and India were the worst performers with returns of -6.7% and -5.8% respectively (in SGD terms). Russia deviated significantly from this emerging market trend to post a stellar first quarter return of 12.9% (in SGD terms) on the back of rising oil prices.
Financial firm EPFR recorded over USD24 billion worth of net redemptions from emerging market funds (as of 21 March 2011), despite emerging markets leading global economic growth in 1Q 2011, particularly the Asia excluding Japan economies.
Developed markets surprised investors with a strong performance, aided by fund inflows of USD57 billion. American equity markets led the charge with a performance of 3.5% (in SGD terms), boosted by fresh equity fund inflows of USD31.9 billion as positive economic data continued to signal the world’s largest economy is firmly on the growth track. European equity markets posted a flat performance but were aided by currency appreciation against both the USD and the SGD. Japan, having endured a massive earthquake and destructive tsunami was the laggard of 1Q 2011 for obvious reasons.
