While U.S. equity markets were less than extraordinary and bonds and stocks returned very little, the European Central Bank’s quantitative easing generated some nice returns. Asia was right behind them with indexes rising handsomely. These sectors of the global market have been dealing with some tough times over the last couple of years. Europe dealing with vicious recession, Japan is dealing with deflation as well as negative dips in GDP, and China’s GDP growth slowed to 7%.
So what did these markets all have in common? All three economies just went through monetary easing, which is something asset prices love. Both Japan and Europe have been busy in massive asset purchases and China has lowered bank reserve requirements and interest rates. Many advisors and investors have identified the Europe and Asia markets as being the big winners in 2015 and it seems as though they were right. Will their success continue? Absolutely.
Are there other areas to take a look at? Yes. There are a lot of positive signs coming from Latin America, Australia and other foreign economies that are material-based. They are inexpensive and I expect them to follow the European and Asian markets. I say this because the demand for commodities will recover and the fact that global central banks want to jumpstart economic growth. Economic growth causes demand, which in turn decreases supply and raises prices and profits.
With central banks focusing on boosting economic growth and price inflation, we are faced with a unique situation. QE, which supports asset prices and economic growth, is being used by many countries after the U.S. showed its effectiveness. Other major economies are creating and using similar programs to bolster their economies and there is no reason why we cannot profit from that here in U.S. Besides, periods of economic stimulus, combined with ample liquidity, low interest rates and inflation is usually good for equity prices.