Why history suggests global shares might rise by 20% in 2012

If the saying proves true that markets follow January’s lead for the rest of the year, then equity investors should expect a very good 2012 – which may some relief after a particularly bad 2011.

Last month’s 4.4% gain by US shares was the highest for January since 1997, when US shares rose 6.1%, according to Standard & Poor’s Indices.

Global shares also rose last month – by 6.1%.

The last time the market went up nearly so sharply in January – by 4.1% in 1999 – it ended that year 21% higher.

In January 1991, when stocks rose 4.2%, they ended the year 30.5% higher.

And in 1997, the 6.1% rise in January presaged a 33.4% gain for the year.

However, January’s rise was not enough to stop some German managers and allocators questioning if people would come back to direct long-only equity investments.

Investors moving for safer harbours of fixed income last year were responsible for some of the 10.1% fall in the S&P Broad Market index.

James Dilworth, new chief executive of Allianz Global Investors Europe, said: “We do not think [the move away] is a temporary phenomenon that will simply come back in a ‘beta bounce’. Direct equity investment is something the retail investor will shun. People want safety. You can deliver safety in equity investments, but only if they are packaged in such a way the downside risk is limited.”

Nevertheless, this year could be a good one if the trend repeats. Since 1998, the US markets has risen in January 16 times. On only one occasion – 2001 – the rise in the first month was followed by a fall for the full year. That year the market gained 3.5% in January, but fell 11.9% by 31 December.

In rising last month, the shares as measured by S&P made $1.8trn. But shareholders are still a way from making back the $3trn losses suffered last year.

Nevertheless, January was a good start – and globally it was a mirror image to last year. Only one of 46 indices (Portugal’s) fell in January, whereas in 2011 only two rose over the full year (Indonesia, Phillipines).

Howard Silverblatt (pictured), senior index analyst at S&P Indices, said the global turnaround from last year’s double-digit declines was because of “a new round of optimism, based on the belief that European debt crisis – while far from over – was starting to be managed, and that the US – while lower in growth – was stable. Investors appeared ready to at least give equities another shot.”

Overall global shares rose 6.1% last month. Greece (up 24.8%), Singapore (13.8%) and Austria and Germany (each 9.9%) led the way in developed markets.

Emerging markets rose 11.6%. There, Brazil was up 14.81%, Russia up 14.23%, India up 20.42%, and China up 10.84%.

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