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The marketsstronglyoutperformedinthefourthquarter.Chinesestocksjumpedinthelastsixweeksoftheyear, forwardwitheconomicreforms.
Fixedincomeyieldsremainedexceedinglylowthroughout2012. -2009,haskeptmoneyinthebondmarketdespiterock longesttenorsoftheyieldcurve.Mostoftheglobalxedincomemarketsareveryexpensive,asinvestorshave pusheddownyieldsinthecreditspaceaswell.Theyieldsofsomeemergingmarketlocalcurrencysovereigns -denominatedsovereignsarenotoverly compelling,especiallywhencomparedtostocks. 2013.
Despitethisrun,riskaversionremains yetadequatelyrewardedthemfortheprospectsforgrowthintheemergingworld.Wearemaintainingan
marketsinthersthalfof2012,but momentlastJulywhenEuropean CentralBankchairmanMarioDraghi announcedthattheECBwoulddo "whateverittakes"tosavethe euro.TheECBwillbuyunlimited amountsofsovereignbondsof eurozonecountriesthatabideby requiredreforms.Themarketshad longhopedforsuchan announcement,asittakestherisk ofimmediatebreakupandnancial meltdownothetable,andgives reformsandbuildstronger announcementremovedalotofthe fearthatsurroundedriskyassets aroundtheglobe,andconvinced
EUROPE
manyinvestorsthatabetagainst theeuroandsovereigndebtof peripheralEuropeancountrieswasa Yieldsfellacross theeurozone,includingcrucial countriesItalyandSpain.
Meanwhile,thedicultworkof regulatoryandeconomicreformhas agreedtoruleswhichputthe eurozonesbiggestbanksunderthe directoversightoftheECB,akey
Italy,Spain,andGreecehavebeen pushingthroughreformstoadjust theirlabormarketsandimprove Itsobviousthat ItalyandSpainneedfaster economicgrowth,buttheoutlook wasearlyin2012.Greeceisamore needmoreaidfromtheeurozones strongereconomies,andmoredebt writedownsareinevitable.Inspite ofthisitslikelythatevenGreece willremaininthecurrencybloc.
Thelastsixteenmonths,from September2011tothepresent, fortheeurozone.Europe'sleaders, ledbyGermanChancellorAngela alongwitheconomics,andhave persistentlypushedfor"more Europe"(meaningmorecentralized controlofscalandregulatory
hasbeencarefulnottogettoofaraheadofher votersalongtowardhercorrectconclusionthatthe besthopeforGermany'sfutureistostaywithina unitedEuropeandeurozone.Merkelsalliesare leadinginthepollsandsheappearswellwhichhasusbullishonthe eurozonesprospects. havefailedtograspthe factthattheeurozone itself,andtheprojectof generally,isaboutmuch morethanthebenetsof freetradeortheeaseof doingbusinessacross crucially,justasmuch frameworkthatwould makewarwithinEurope impossible.Thisiswhy Europe'sleadershavepushedaheadtosolvethe Europes
breakingupthecurrencybloc,it'seasytoseewhy whyvoters,bothwithincoreandperipheralcountries, haveacceptedpainfulreforms.Germany,Italy,Spain, France,andevenGreecehavethrowntheirlotinwith Europeandtheeurozone,andit'sclearnowthatthe eurowillsurvive.
unitywillonlygaininimportanceinthecomingyearsas thebigemergingeconomies Brazil,India,China, Indonesia,andothers thebalanceofglobalpower,bothineconomicsand Whenlookedatinthiscontext,and whilekeepinginmindtheunpredictablecostof
That'sthegoodnews.Thebadnewsisthatyearsof austerityareaheadformuchofEurope,andgrowthis likelytobeslow.
Germany,forexample,andpartsofeasternEurope butgenerallytheoutlookforeconomicgrowthonthe Therearevaluestobehadinsome remainssourdespiterecentgains.
CHINA AND THE EMERGING MARKETS
Emergingmarketeconomiesnowproduceabouthalf theworld'sGDP,andprospectsforfuturegrowthare bright.Thebiggestandmostimportantemerging economy,ofcourse,isChina,anditseconomyis recoveringas2013begins.Growthhadslowedto around7.5%lastyear,whichformostoftheworld wouldbeanexcellentnumber,butinvestorswere nervoussincethedropinGDPgrowthhadyettobe
ManufacturingandtradedatainNovember andDecember,however,werehigherthanexpected,
China'snewleadershipwasannouncedinNovember, disappointedbythenewteam.Thereishopefor economicreform,however,asCommunistPartyleader
liberalizingChinaseconomy.DengXiaopingmadeShenzhenaspecialeconomiczonein1980,oneoftherstin ChinaaspartofDengseconomicreformpolicies.TheChinesegovernmentrecentlyannouncedmovesto furtherliberalizeitsnancialmarkets,andwillallowmoreforeignmoneymanagerstoinvestinlocalcapital markets.PolicymakersareclearlylookingtoboostChina'sstockmarket,whichhasbeenanemicthelastthree years.
Chinawillundoubtedlyhavehiccupsalongtheway,butoverthelongerrunthecountry'seconomywillbeoneof theworld'stopperformers. ofpeopleinthecountrysideeagertoplacethemselvesintothemodernglobaleconomy,astheyworktobuilda higherthansomeotherfast-growingemergingeconomies,andclearlythegovernmenthasmisallocated resourcesinsomewell-
-8%duringthenext
Therealhasfallenduringthelasttenmonthstoamorereasonablelevel,however,andthisshould jumpstartexportsin2013. nallysettotake eectandincreasingdemandfromChinaforexportswillprovideaboost.Brazilianstocksarecheap the
Brazil. -termgrowth,includingMexico, Colombia,andChile.Colombiaslowedin2012,buthasthebestprospectsofthethree.
