The year saw violent political change, natural disasters and waves of price of raw materials that would normally have spelt disaster for world markets.
Ask most investors how a change of regime throughout the Arab world, the involvement of NATO in Libya oil $ 120 and a crisis earthquake or the Japan nuclear (not to mention another bail out the in the Portugal) would have an impact on financial markets, and few could have guessed that indices more West will actually increase.
Local investors in the Dow Jones Industrial average saw near double-digit returns this year to date, the 50 leading companies in the euro area are rising by about 5MC and the FTSE 100 is subject of break-even.
The best yields were Interestingly come from the former instead of the new economy and society, the strong performance of equity more generally. During this time, volatility remained abnormally low, while the United States and the United Kingdom markets bond (despite deficits) are almost entirely unchanged in 2011.
So what is behind this change of character suddenly in financial markets, teenage tearaway matron serenity, and can survive any natural disasters or geopolitical Black Swans?
First of course, the soothing balm of the liquidity of the massif central bank with interest rates close to zero combined with quantitative easing continues to work its magic. Yes, U.S. bond purchase program is tire to its end, but the Federal Reserve has reiterated that super low rates of today will remain a "long period".
The European Central Bank (ECB) has begun on the other hand, the rate of increase in the last month cycle, but at the Thursday meeting President of the ECB Jean-Claude Trichet has already sounding less bellicose. In the meantime, a lower set of business surveys UK reversed speak of an increase in rates beginning here, despite the Bank of England, see "significant risk" that inflation could move over 5MC in the coming months.
However, inflationary pressures in the emerging world are becoming difficult to ignore, with policy makers, noting certainly the political impact of soaring food and the prices of energy throughout the Arab countries.
The India, the Russia and the Colombia have all increased in these fifteen days, interest rates, while the Brazil, China and the Poland led at a pace more rapid appreciation of the currency that would have been tolerated. Fell Chinese yuan below 6.5 to the dollar Friday, the highest level since the country unified of the market in 1993 and official exchange rates.
It appears that the mercantilist reluctance to adopt more orthodox monetary policy tools gives way to awareness that currencies, especially for hungry developing economies of commodity, is an exceptionally effective way to reduce inflation.
If this is the beginning of a mixture of policy in emerging markets harden, then some of the world finally booming economies will slow down. The prima facie challenge policy makers should not be underestimated. There will be no doubt of the errors, and the history of the tiger economies is littered with busts regards booms. The emerging markets of the world are substantially underperformance to their Western counterparts this year, which may be part of the reason for the stability of the Western markets.
Why? Because this indicates the beginning of a broad rebalancing of growth from East to West is cruelly. Above all, however, it is the quality of the actions of "blue-chip" of today which are underlying the stability, after what was a decade or more disappointing and volatile returns. For the & S P 500 cash as a percentage of the total assets is highest for more than 30 years, while the level of the cash for the wider European market is almost a maximum of 20 years to 12pc of total assets.
In the United Kingdom, improved cash flow generation and the reluctance to take advantage of balance sheets in the past two years has left companies with net debt lower remuneration for 11 years.
Our thesis is that this surprising resilience in the financial markets will continue for as long as bankers central nervous in the West for their colleagues fearing inflation in the East to the race in terms of tightening of policy.
"Thematic" blue-chip shares then become the investment of choice, offering diversified overall remuneration, dividend growth and the generation of cash unprecedented at a time where there is little competition close cash zero and actual obligations.
Add another series of Japanese quantitative easing, trophy more M & A and a gradual thawing of the mountain of binding, and this can only be the beginning of a multi-year flow of funds in a market global equity rather more "distinguished."
Guy Monson and Subitha Subramaniam are Managing Partner and Chief Economist respectively Sarasin & Partners LLP
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