Market Watch: Navigating Global Markets

Most asset classes bar major government bonds have seen a pullback in recent weeks amid renewed concerns over the European economic and financial crisis, a slowdown in China and the weak secular economic growth in the advanced economies. The MSCI AC World Index (including both advanced and emerging equities) has corrected by some 12.7% from its year-to-date high in local currency terms, while ten-year treasuries, gilts and bunds have fallen to 1.72%, 1.83% and 1.43% respectively (as at 18 May 2012).

Europe at the epicentre of global risks

The focus is on the risk of a Greek default and eurozone exit and the lack of growth in the region. The political uncertainty in Greece is increasing the risk of a run on its banks and raising fears of contagion to other parts of Europe. Germany may eventually have to provide the backstop to the peripheral economies' debt problems. The other element of this crisis is the lack of growth in the region.