GLOBAL MARKETS WEEKAHEAD-New quarter, old issues for investors

By Jeremy Gaunt, European Investment Correspondent

LONDON, March 25 (Reuters) – Surprising as it may seem,
investors are heading into a new quarter in relatively buoyant
form, overcoming nerves about Japan’s disasters, rising oil
prices and the EU’s delay in finalising its debt crisis package.

The first quarter was littered with weeks of “risk on, risk
off” trading and a lot of uncertainty remains. But it is ending
with remarkable resilience.

World stocks as measured by MSCI (.MIWD00000PUS: Quote, Profile, Research) are above
the levels they were at when Japan’s earthquake hit. Emerging
market shares (.MSCIEF: Quote, Profile, Research), losers for much of Q1, are nearly in
the black for 2011 at eight-week highs.

The VIX volatility index (.VIX: Quote, Profile, Research) is back down near levels not
seen since before the Egyptian unrest began stirring the oil
Reuters’ quarterly poll of almost 400 market analysts and
economists, released in the past week, showed all 18 stock
indexes covered in the survey finishing 2011 in positive
territory compared with current levels. [ID:nLDE72K1HU]

For graphic on Reuters equity polls

Some, such as Hong Kong’s Hang Seng (.HSI: Quote, Profile, Research) and Korea’s KOSPI
(.KSS11: Quote, Profile, Research), were seen gaining more than 17 percent by year-end.

Other gains were more modest, but nonetheless positive, such
as 8 percent for the U.S. S&P 500 (.SPX: Quote, Profile, Research), more than 9 percent
for France’s CAC 40 (.FCHI: Quote, Profile, Research) and a solid 13 percent plus for
Germany’s DAX.(.GDAXI: Quote, Profile, Research)

The primary driver, when everything else is stripped away,
is confidence that the global economy is in pretty good
condition and with it the corporate outlook.

It may not feel like it to millions of people in developed
economies weighed down with debt and still recovering from
recession but at an International Monetary Fund-projected 4.7
percent, global growth is set to rise well above the roughly 3.5
percent long-term average.

“There is still a lot of uncertainty … but the big thing
that has allowed markets to climb this (recent) wall of worry is
the economy,” said Valentijn van Nieuwenhuijzen, head of
strategy at ING Investment Management.

Recovery, he said, had spread from just manufacturing and
trade to services, making it broader and more “shock proof”.

Economic focus in the coming week will, therefore, be on
critical U.S., euro zone and Japanese employment reports while
the impact on world business confidence from recent events will
be monitored in global Purchasing Manager Indexes.


From a purely markets perspective, however, the past three
months have thrown out some remarkable challenges — none of
which have actually gone away.

There is some interesting economic debate about whether the
events were actually “Black Swans” that no one could predict or
just far out tail risks. [ID:nLDE72H1WL]

But it is probably fair to say that no one was properly
positioned for Japan’s triple disasters of earthquake, tsumami
and nuclear crisis, or for a revolt in the Arab world that would
set geopolitics on its head and drive up the oil price.

The stubborn nature of the euro zone debt crisis was
probably easier to predict, but not necessarily to position for
given the complexity of competing domestic and international
politics coming up against market demands for quick answers.

So not everyone is entering the second quarter in a risk
positive mood, particularly with higher interest rates around
the corner from policymakers, notably the European Central Bank.

Barclays Capital said in the past week that policy
normalisation — higher rates — meant its clients should take
“a more cautious approach to markets than the risk-embracing
positions we have recommended since the recovery got under way
two years ago”.

But it did say that the Japan disasters and North
Africa/Middle East revolts should not derail the global economic


One of the focuses of the coming week, meanwhile, is likely
to be another delay in solving the euro zone debt crisis.

European leaders wrapped up a much heralded summit on Friday
by giving themselves until June to finalise an increase in their
temporary bailout facility, failing to deliver the broad package
they had promised.

Markets took the failure fairly calmly, perhaps because they
are used to EU leaders extending supposedly fixed deadlines for
resolving multiple clashes of national interests.

But Portugal, the main country under pressure at the moment,
saw its debt costs rise and was widely assumed to be heading
towards a bailout similar to those given to Greece and Ireland.

(Editing by Ruth Pitchford)

GLOBAL MARKETS WEEKAHEAD-New quarter, old issues for investors