US
The unprecedented market events began with news that Lehman Brothers had filed for bankruptcy, swiftly followed by reports of a merger between Bank of America and Merrill Lynch. Global equities plunged on the back of this, and worsened amid rumours that AIG was experiencing severe liquidity issues. News that AIG would receive an US$85 billion Federal Reserve (Fed) loan to avoid collapse, stabilised markets.

On Friday, global equity fortunes reversed as the US announced a massive clean-up of toxic mortgage debt on the books of the biggest banks together with moves to cut short-selling. This led to a dramatic revival as equity markets surged, headed by banks, in the wake of the US intervention. Against this backdrop, the S&P 500 rallied sharply to recover earlier losses closing up 0.3 percent.

Japan
Global themes spilled into Japan, as markets reacted to news emanating from the financial system. Friday’s news rekindled investor appetite, which had fallen due to mounting fears over the health of the global financial system. Subsequently, the Nikkei 225 Average rose 3.8 percent on its final trading day to close down 2.4 percent – the same loss recorded by the Topix Index.

Europe
European stock markets saw their biggest ever one-day gains on Friday. France’s CAC 40 produced a record one-day gain, rising 9.3 percent. Nevertheless this merely offset earlier losses as the CAC 40 lost 0.2 percent and the German DAX declined by 0.7 percent.

UK
In a week in which records were broken across the board – and some stocks rose more in a single day than they do in an entire year – the UK’s FTSE 100 led the way. After being down 10 percent on Thursday, which would have made it the worst week since October 1987, the index rallied 8.8 percent – a one-day record. On the back of this, the FTSE All-Share fell just 1.7 percent.

Asia & Developing Markets
Outside Japan, other Asian equity markets were also hit by the increased volatility. The Hong Kong China Enterprises index of Chinese stocks, listed in Hong Kong, recovered well after the Fed’s intervention to finish flat, while Hong Kong’s Hang Seng index recorded a small decline of 0.1 percent.

Emerging markets rallied after suffering big losses early on. The MSCI EM equity index surged 9.6 percent, pulling it off two-year lows. Elsewhere, Russian stocks were among the most volatile, as trading was suspended for much of the week. The RTS index rose 22.3 percent on Friday – a record one-day gain – although the index still finished down 3.4 percent over the period.

Bonds
In contrast, government bonds collapsed as yields on two-year US Treasuries saw their highest one-day jump since 1981 on Friday. The 10-year Treasury was up 3.8 percent, while German bunds and UK gilts yields rose strongly on the final day. However, this negated the week’s earlier events in which the flight to safety had pushed yields much lower.

Currencies
In currency markets, the US dollar rebounded following the Fed’s intervention. However, across the period, the greenback lost ground against the euro, sterling and Japanese yen overall.

Commodities
Commodities reacted positively to the turmoil in financial markets earlier in the week. Gold led the way rising 11 percent on Wednesday as investors flocked to safe-haven investments, before finishing up 13.4 percent, towing other precious metals higher in its wake. By contrast, oil (Brent Crude) declined 3.1 percent.

For further information, or to discuss how current global economic conditions are affecting your investments, please feel free to contact Craig Welsh at Spectrum IFA Group or visit www.expatfinance.nl.

This commentary was compiled with the assistance of BlackRock, one of the world’s leading investment management groups.