Eurozone fatigue is setting in for global equities, and managers worldwide are bracing for more trouble ahead as market movements largely respond to political efforts to contain the region's debt crisis.
“The current period of high volatility has been led by governments, which is a bit different” from previous market unrest, said Carl Hess, global head of investments at Towers Watson & Co. in New York. “Government touches everyone, everything and all asset classes.”
Although the eurozone's problems stem from overleveraging by certain peripheral governments, the resulting volatility has echoed across global stock markets. As the Continent's problems escalated in the second half of the year, equity markets in the U.S., Asia and elsewhere have felt “the brunt of the sell-off,” said Virginie Maisonneuve, head of global and international equities at Schroder Investment Management in London.
The U.S. equities market, which was dubbed one of the best performing regions by many managers, barely budged on a year-on-year basis. For example, the Standard & Poor's 500 stood about the same level it was at the end of last year. The Morgan Stanley Capital International World index, which comprises worldwide developed market equities, fell about 8.1% so far this year. The STOXX Europe 600 suffered a 12.8% loss during the same period.
In between, wild intraday swings since August have resulted in much sharper highs and lows compared with the earlier part of the year. The Chicago Board Options Exchange Volatility index skyrocketed 50% to 48 on Aug. 8, its second highest daily rise on record, and has generally remained above its average daily closing values ever since.