World stocks suffer worst first half since 2010

LONDON • If last year’s financial markets boom was down to a “Goldilocks” global economy, 2018 has so far been all about the bears, with the worst start to a year for world stocks since 2010.

A grisly mix of U.S.-China trade tensions, central banks turning off the money taps and cooling growth in hotspots including Europe has wiped a trillion dollars off MSCI’s 47-country world index.

A pumped-up dollar, which has had its best first half in three years, and a 16 per cent leap in oil prices have played a big role too clobbering emerging markets particularly hard.

Argentina’s peso and Turkey’s lira have been shredded 30 and 17 per cent, respectively, Chinese stocks have entered bear market territory and EM equities have slumped 10 per cent, or 17 per cent excluding a brief January surge.

“People just woke up to the fact that something has changed,” said London & Capital’s chief investment officer Pau Morilla-Giner.

Still, it hasn’t been a doom-fest everywhere.

One Wall Street bellwether, the S&P 500, is clinging on in positive territory and while the trade jitters have sapped the Dow Jones Industrial, the Nasdaq has set records this month.

As a set, the FAANGs (Facebook, Amazon, Apple, Netflix and Google) are up almost 40 per cent despite having US$400 billion wiped off their combined value in March when it was revealed Facebook misused 50 million of its users’ data.

Netflix has more than doubled in price this year, Amazon is up 45 per cent and Facebook is fully recovered and up over 11 per cent. Also, for all the pressure heaped on China in recent months, its tech giant Alibaba is up 11 per cent.

Among the major currencies, the dollar is up almost three per cent against the euro and nearly two per cent versus the safe-haven yen.

For emerging markets that rise has been a wrecking ball. On top of the ailing lira and peso, Brazil’s real is down 14 per cent, India’s rupee seven per cent, South Africa’s rand 10 per cent and — despite the oil rally — Russia’s ruble nine per cent.

Having been the stars of 2017, MSCI’s EM equities index is down eight per cent and local currency and dollar-denominated EM bonds have fallen six per cent and five per cent respectively.

What has caused the most concern, though, has been China. Stocks there entered a bear market this week having dropped 20 per cent from their January peaks, while the yuan has just had its worst month on record.

With China the biggest consumer of industrial commodities, its misfiring economy has also contributed to the respective nine and 15 per cent declines in the price of copper and zinc, used in things like pipes and steel.

“What tends to move markets the most tends to be issues with China,” said Sharmin Mossavar-Rahmani, chief investment officer for private wealth management at Goldman Sachs.