Nature call

Over the past two years has seen a dramatic change in investment strategy-the money shall be paid out of the stock market in developed countries and in those of emerging markets (as well as bonds and other alternative tools). According to new research $ 203 billion was pulled out of equity funds market developed since August 2008-of which some $ 83 billion has gone into emerging market equity funds. The financial crisis has created a new world of sorts.

Almost 2 years ago, on the day Lehman Brothers filed for bankruptcy, triggering the global financial crisis, which still hangs over most world markets. However unlike previous credit crises the bounce back was slow and a little disturbing. Two years ago Monday, that the Dow was trading at 11, 421.99 points, as Monday was trading at 544.13, 10-some 900 points lower. In comparison, two years after the crisis of 1987 the Dow was nearly 20% above the level it was before ‘ Black Monday ‘ (biggest one day percentage fall in history). The current crisis has not only scared investors who showed significant weakness in the economies of many markets-debt levels which are unsustainable and low growth prospects.

In an effort to chase down returns and protect against the battered economies of investors have plowed their money into bonds, gold and emerging markets. Over the past two years have seen the price of gold rocketed up to 64% and bond markets outperforming stock markets but rather some distance. Emerging markets, once seen as a high-risk investment, have benefited from lower debt levels and stronger growth prospects and are now seen as the key driver of global economic growth.

Financial stocks, often seen as a key driver of the market have suffered more than most. This group is the worst performing S & P 500 over the past two years with an average loss of 31% compared to 12% for the S & P 500 as a whole. Amendment Regulation has impacted on the bottom line, and while many banks have returned to profit many argue that came on the back of massive Government stimulus.

It is likely that the clouds will remain for some time as the economic recovery of the United States, in particular, remain muted. This is not to say that there are no back out there-in fact there are good returns for investors willing to look outside the box. While the S & P and FTSE is down over the past two years, markets in Brazil, China, Thailand and India are around.