World equities jumped to a record high on Monday on expectations that the current cycle of US interest rate increases was approaching an end.
The MSCI All Country World Index hit a new high of 349.06, passing the previous record of 349.04 struck at the height of the dotcom equity bubble in March 2000.
Monday’s rally was led by surging Asian markets, which rose on continued strong earnings news across the region and catch-up buying following a sharp advance on Wall Street on Friday in the wake of weaker-than-expected employment data for April.
The non-farm payroll data raised expectations that the US Federal Reserve would pause after making a widely-expected 25 basis points increase in its benchmark interest rate to 5 per cent on Wednesday.
But Wall Street investors took a more cautious stance on Monday with leading indices trading largely flat. That pushed the MSCI All Country World Index lower to 347.78 in late London trade.
The index, which covers 2,618 constituents in 49 developed and emerging markets, is still up 12.3 per cent since the start of the year. The index, widely followed by global fund managers as a benchmark for their portfolios, has rallied 105.2 per cent from its bear market low of 169.48 struck on October 9, 2002, in the aftermath of corporate scandals in the US.
Emerging and non-US developed markets have been the main driver of the overall rally in global equity markets. While the S&P 500 index, the US blue-chip stock indicator, has risen 70 per cent from its October 9, 2 nadir the MSCI Emerging Markets Index has powered ahead 241 per cent over that period. The trend has continued in the current year with a 23.2 per cent rise in the MSCI Emerging Markets index, outstripping a 6 per cent gain in the S&P 500.
Analysts said world markets had been spurred by a Goldilocks scenario, where economic and corporate conditions were neither too hot nor too cold. Richard Batley, economist at Schroders, said that while the US market lagged behind the world index, this had been offset by gains in Europe and Asia on improved corporate profitability and stronger economic growth.
Teun Draissma, strategist at Morgan Stanley, said momentum in world markets was “very strong”. He said global markets were overlooking macro risks of increasing inflation, further interest rates rises, high oil prices and a weak dollar.