Figure 1: Global Stock Markets
Chairman’s Review
Unit Trust Corporation
Annual Report 2012
26
Global Economy and
Financial Markets
In 2012, economies across the globe faced
numerous headwinds. In the US, against the
backdrop of very slow growth, the Federal
Reserve took decisive action to stimulate
the economy that, in turn, served to create
downward pressure on interest rates. At the
end of the year, the US economy was also
challenged on a political front as lawmakers
were faced with decisions to increase tax
rates and decrease government spending
termed the “fiscal cliff”.
The recessionary woes that plagued Europe
in 2011 continued into 2012 which led to
the credit downgrade of nine (9) Eurozone
countries by Standard & Poors’ Credit rating
agency. In an effort to shore up the econo-
my and to restore confidence in the region,
the ECB announced its “Outright Monetary
Transaction” program which entailed buy-
ing secondary sovereign bonds with the
objective of lowering borrowing costs for
European countries that faced problems in
selling new debt securities.
The UK benefitted greatly from hosting the
Olympics in August of 2012, as GDP rebound-
ed in the third quarter of 2012 expanding 1%
following two consecutive quarterly contrac-
tions. Once the effects of the spending asso-
ciated with the Olympics waned, GDP fell to
0.30% in Q4 2012.
The fallout of Europe’s recessionary pressures
was felt in the Asian and Latin American re-
gions as export demand from Europe con-
tracted which resulted in a slowdown in
several economies. In an attempt to boost
growth, several emerging market central
banks eased their monetary policy. Brazil’s
central bank lowered the Selic rate from
9.75% at the beginning of the year to 8.50%
by the end of June 2012. Similarly, China’s
central bank lowered its Regulated Reserve
ratio from 20.5% in January to 20% in June
while India’s central bank reduced both its
cash reserve ratio and policy rate.
Such credible steps taken by the US and the
European Central Bank aided in bolstering
stock markets around the world as both eco-
nomic activity and investor confidence were
boosted. International stock markets posted
double digit returns while activity on the
local stock market picked up from where it
left off in 2011. Interest rates trended down-
wards over 2012 which positively impacted
fixed income securities.
In line with the more accommodative mon-
etary policies implemented by several cen-
tral banks, the interest rate environment
remained low, with policy interest rates in
Europe and Brazil reaching record lows in
2012. Policy rates in the US, Canada and the
UK remained at 2011 levels of 0.25%, 1% and
0.50% respectively. Yields on 10 year sover-
eign bonds also fell during the year, with the
largest decline occurring in Europe as 10 year
yields declined 51 basis points to 1.32%.
Table 1:
Global Policy Rates
Global Benchmark Rates
Region Dec-12 Dec-11 Y/Y change
(bps)
US
0.25 0.25
0.00
Canada
1.00 1.00
0.00
Eurozone
0.75 1.00
-0.25
UK
0.50 0.50
0.00
Japan
0.10 0.10
0.00
Brazil
7.25 10.75
- 3.50
Table 2:
Global 10 Year Bond rates
Global 10yr. Bond Rates
Region Dec-12 Dec-11 Y/Y change
(bps)
US
1.76 1.88
- 0.12
Canada
1.80 1.94
- 0.14
Eurozone
1.32 1.83
- 0.51
UK
1.83 1.98
- 0.15
Japan
0.79 0.99
- 0.20
European stock markets were the best per-
formers for 2012, with the German DAX post-
ing a gain of 29%. Following suit were the
stock markets in the Asian region, with Hong
Kong’s Hang Seng index increasing by 23%
and the India’s Sensex index climbing 26%.
The US stock market achieved moderate re-
turns of 13.5% in comparison with the oth-
er stock markets owing to the volatility that
arose from the “fiscal cliff”
Regional Economies and
Financial Markets
Economic growth in the Caribbean region de-
celerated further in 2012 against the backdrop
of lingering fragilities in the global economy,
with the region growing by 1.1% in 2012 in
comparison to 3.3% in 2011. Commodity
exporters, Guyana and Suriname are expect-
ed to post GDP growth of 3.9% and 4.0% re-
spectively, and have fared better than their
tourism-intensive counterparts, Barbados and
Jamaica. GDP growth stagnated in Barbados
in 2012 whereas in Jamaica and in Grenada
0.0%
5.0%
-5.0%
10.0%
-10.0%
20.0%
15.0%
Feb-12
Jan-12
Mar-12 Apr-12 May-12Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12
S&P 500 Index
S&P Europe 350 Index
MSCIAC Asia Pacific Index
