World Markets Review for Fourth Quarter 2015 | Capital Group


Market Commentary

January 2016

World Markets Review for Fourth Quarter 2015

Global stocks advanced amid surging M&A activity and a strong year-end rally in the technology sector. The Fed raised interest rates for the first time in nearly a decade, but cautioned that future rate increases would depend on the pace of U.S. economic growth. Conversely, central banks in Europe and Japan ramped up stimulus measures in an attempt to jumpstart lackluster economies. U.S. bonds fell and the dollar rose against the euro and the yen.

Index Returns (Quarter)

December 2015

Q4 2015



Dollar %

Local %


Dollar %

Local %


Dollar %

Local %

MSCI World





















MSCI Europe







MSCI Pacific ex Japan







S&P 500







MSCI Japan














Barclays Global Aggregate




Barclays U.S. Aggregate







J.P. Morgan EMBI Global







J.P. Morgan GBI–EM Global Diversified







MSCI index returns reflect net dividends. Source: RIMES

North America

U.S. stocks joined in the global rally amid continuing economic growth, a key decision on interest rates and strong mergers-and-acquisitions activity. The Standard & Poor’s 500 Composite Index notched a total return of 7%. The Dow Jones Industrial Average and the Nasdaq composite Index gained 8% and 9%, respectively.

All 10 S&P sectors advanced, though energy rose just 0.2% due to the prolonged slump in oil and natural gas prices. U.S. crude oil fell to just above $34 a barrel and ended the quarter at around $37 – an 18% decline. Heating oil and natural gas prices slipped further as unseasonably warm weather embraced the eastern U.S. Most other commodities also weakened, pressured by worries about the global economy and the strong dollar. Gold fell 5% to end the month at $1,062 an ounce. 

Materials rallied 10% on the back of several mergers. Falling commodity prices were an impetus for the announced merger of Dow Chemical and DuPont. The two companies plan to combine into an entity valued at more than $120 billion before splitting into three publicly traded concerns; their share prices climbed 22% and 39%, respectively. Shares of sealed air provider Airgas gained more than 50%, continuing to rise after it agreed to be acquired by France’s Air Liquide in November. On the other hand, gold and copper miner Freeport McMoRan said it would suspend its dividend to preserve liquidity; its shares fell 30% for the quarter and 70% over the year. 

The information technology and health care sectors each rose 9%. Several large tech companies reported robust earnings. Microsoft shares advanced as its quarterly earnings exceeded analysts’ estimates and the company reported a steep increase in revenues from key cloud computing services. Alphabet shares also soared; the newly organized parent company of Google reported better-than-expected profits and revenues and said it would use some of its $70 billion cash hoard for a $5.1 billion share buyback. Accessing the fast-growing cloud segment prompted privately held Dell to offer $67 billion for data storage firm EMC in October in the largest-ever tech acquisition. Merger activity was also significant among health care companies. In November pharmaceutical giant Pfizer purchased Ireland-based rival Allergan for around $160 billion — the largest tie-up of 2015 and the second largest on record. 

Consumer discretionary stocks rose 6%. E-retailer Amazon gained 32%, helped by a surprise profitable quarter that was largely attributed to its expanding cloud computing operations. Both Amazon and streaming video provider Netflix saw their share prices more than double over the year.

The Federal Reserve raised the federal funds target rate by 25 basis points in mid-December to a range of 0.25% to 0.50% — the first rate hike in nine years. Speaking after the announcement, Fed Chair Janet Yellen said the decision reflects the Fed’s confidence that the U.S. economy is on a path to “sustainable improvement.” The final estimate for real gross domestic product growth for the third quarter was revised to 2% annualized on the heels of the second quarter’s 3.9% gain. U.S. employers added more than 200,000 jobs in both October and November and the unemployment rate fell to 5%. Consumer price inflation for all items ended November at 0.4%, but the “core” figure that excludes food and energy rose 2.0%.

In bond markets, the Barclays U.S. Aggregate Index lost 0.6%. Bonds were volatile and yields trended higher as the Fed finally raised interest rates for the first time in nearly a decade. Concerns about the high-yield market triggered record outflows from corporate bond funds, prompting a few to block redemptions. The benchmark 10-year Treasury note’s yield moved 21 basis points higher to 2.27%. Stubbornly low prices of crude oil continued to weigh on the outlook for inflation and the businesses of energy-related issuers; Treasury Inflation Protected Securities and high-yield bonds fell 0.6% and 2.1%, respectively. Corporate spreads to Treasuries tightened 4 basis points to 165 basis points and corporate bonds were 0.6% lower. Activity in the new-issue market remained fairly brisk, with Visa’s $16 billion bond offering, used to finance its acquisition of Visa Europe, among the notable deals. Municipal bonds remained a bright spot, gaining 1.5%.


European stocks rallied for the first two months of the quarter on investor expectations of heightened central bank stimulus measures. However, markets tumbled in December after the European Central Bank failed to deliver on those expectations. On Dec. 3, the ECB cut its deposit rate and extended its bond-buying program by six months, disappointing investors who had expected an increase in the amount of bond purchases. European stocks lost 4% in December. For the quarter, and for the full year, the MSCI Europe Index rose 5%.

Government bond prices fell sharply after the ECB action, given market expectations of a roughly €10 billion increase in the central bank’s €60 billion-a-month bond-buying program. Instead, the ECB reduced its deposit rate, already in negative territory, to –0.3% and extended its bond-buying schedule by six months to March 2017. For the quarter, the yield on Germany’s benchmark 10-year note climbed 4 basis points to end the year at 0.63%, and the euro fell 3% against the U.S. dollar.

Technology stocks enjoyed the biggest gains, rising 13% during the quarter amid an improving earnings outlook at some bellwether firms. Shares of German software giant SAP rallied on higher-than-expected sales growth in its cloud-computing products. Infineon Technologies shares advanced after the German semiconductor firm reported an 80% increase in fourth-quarter profit. The chipmaker also indicated that it would increase its dividend and seek strategic acquisitions in the rapidly consolidating semiconductor industry.

Consumer staples stocks rose 7%, helped in part by surging M&A activity. Anheuser-Busch InBev shares climbed on investor optimism for the beer maker’s plan to acquire rival SABMiller. If it closes, the $108 billion deal will be among the largest corporate takeovers in history. In the biggest coffee-related deal ever, German investment firm JAB Holding took Keurig Green Mountain private for $13.9 billion, a 78% premium on Keurig shares. JAB also owns U.S.-based Caribou Coffee and Peet’s Coffee & Tea.

Stocks in the industrials sector rose 6%. Siemens shares advanced on the announcement of a 6% dividend boost compared to last year and the initiation of a €3 billion share repurchase program. Airbus shares gained after the airplane manufacturer beat quarterly earnings forecasts and announced it would raise production of the A320 jet to a record high of 60 planes per month by 2019, up from 42 per month this year. Shares of Vestas Wind Systems rallied after the Danish wind turbine maker doubled its year-over-year profit amid a booming market for renewable energy sources.

Consumer discretionary stocks also rose 6% as a weaker euro helped export-oriented companies. Daimler shares continued their strong advance as the German automaker closed in on a record year for Mercedes Benz sales. In addition, Volkswagen, Renault and BMW were among the biggest gainers in the sector. Sports apparel company Adidas climbed on consensus-beating revenue and profits, largely driven by better sales in China and North America.

Energy and materials stocks lagged the overall market, but still managed gains of 2% to 3% in aggregate. Shares of agrochemicals firm Syngenta rallied on heightened M&A talk in the wake of the announced merger of Dow Chemical and DuPont. Shares of oil giant BP rose as oil prices stabilized throughout the quarter, albeit at multi-year lows. In the health care sector, shares of Sanofi declined sharply after the drug maker said it expects to achieve no meaningful profit growth through 2017 due to fierce competition in the market for diabetes treatments.


Japanese equities gained sharply, joining the global rally in October following a weak third quarter. Amid mixed economic data, the Bank of Japan lowered its growth forecast but decided to keep the size of its monetary stimulus program unchanged. The MSCI Japan Index rose 10%, while the broader MSCI Pacific Index advanced 9%. The yen weakened less than 1% against the U.S. dollar.

The Bank of Japan lowered its growth and inflation forecasts but decided to maintain its annual asset purchases at around ¥80 trillion. The central bank’s decision to lengthen the average maturity of the Japanese government bonds it purchases was largely met with investor skepticism regarding whether it would help stoke inflation. Consumer prices excluding food and energy rose 0.9% in November, while headline inflation ticked up 0.3%. The sluggish economy grew by an annualized 1.0% in the third quarter, revised higher from the early estimate of –0.8% that would have placed Japan in a technical recession. Japan Post Holdings and its two financial units raised $12 billion in the country’s largest initial public offering of 2015 and its biggest state asset sale since 1987.

Health care led all sectors in Japan, returning 19%. Pharmaceutical companies Ono and Shionogi both rallied as investors continued to be encouraged by their strong drug pipelines. Shares of telecommunication services companies rose after a government panel’s recommendations on price cuts were less restrictive than expected. Telecom stocks had sold off in September after Prime Minister Shinzo Abe indicated that mobile phone bills were too high, but the panel’s request to decrease costs for low-usage subscribers was not expected to materially impact revenues. 

A persistently weak yen lifted Japanese automobile companies. Honda announced record overseas production in November, and also increased domestic assembly for the first time in 15 months. Shares of Fuji Heavy Industries touched all-time highs after the Subaru maker announced it would more than double its annual dividend. Toyota shares rose 8%, while the company regained its lead as the top-selling automaker in the world.

However, some consumer companies lagged. Nintendo shares sank after the game maker announced a delay in launching its first mobile application. Investors were also disappointed that Nintendo’s management is leading with a new social communication application rather than its iconic games. Toshiba shares declined after the electronics firm reported it expected to lose more than $4 billion in the fiscal year due to heavy restructuring costs in the wake of an ongoing accounting scandal. Fast Retailing fell short of its fourth-quarter profit targets as its Uniqlo stores had weak sales in the U.S., sending its stock price lower. 

Australian equities gained 6%, supported by strong returns from the financials sector. All four megabanks raised home loan interest rates during the quarter, moves expected to add over $1 billion in annual revenues to the industry. However, plummeting commodity prices weighed on the shares of energy and materials companies. BHP Billiton fell to a 10-year low after a Brazilian court declared the firm would be partially responsible for billions of dollars of environmental damages from a burst dam. After declining for much of the year, the Australian dollar reversed its trend, gaining 4% against the U.S. dollar.

Shares of Hong Kong–listed companies increased 6%. Macau-based casino operators rallied amid speculation that China would soon introduce more policies to support the gambling mecca’s slumping economy. Index heavyweight AIA Group rose 16%. Real estate developers lagged, as one of the world’s hottest real estate markets has showed signs of cooling.

Emerging Markets

Emerging markets equities posted a small gain, steadying as China rolled out more stimulus measures to help offset its decelerating economy and the U.S. Federal Reserve provided assurances on the direction of U.S. monetary policy. The MSCI Emerging Markets IMI rose 1%. Stocks in the information technology and health care sectors led gains, while the telecommunication services sector weighed on the index. Most emerging markets currencies weakened against the U.S. dollar. U.S. dollar–denominated bonds, as measured by the J.P. Morgan EMBI Global Index, rose 1.5% in the quarter; local currency debt, as measured by the J.P. Morgan GBI-EM Global Diversified Index, rose in local currency but was flat in dollar terms.

The China MSCI IMI rose 5% amid further government measures to stoke consumption. China’s central bank cut interest rates for the sixth time in a year and lowered the amount of cash banks are required to hold as reserves. October car sales accelerated at the fastest pace in 10 months after the government halved the purchase tax on small cars in late September. Shares of property development companies China Overseas Land & Investment and Evergrande Real Estate Group paced gainers, advancing on an increase in home sales and supportive government policies for the real estate market. In a significant decision, the International Monetary Fund said it would include China’s currency, the renminbi, in its elite basket of currencies starting in late 2016.

Asian markets ended mostly higher. Indonesian stocks surged 20% as the government pressed ahead with policies to combat weaker demand for the country’s commodities, waning foreign investment and sluggish domestic consumption. Reforms were rolled out to help improve the business climate in areas such as manufacturing, oil exploration and tourism. The rupiah rose 6% against the U.S. dollar. Meanwhile, equities in South Korea advanced 4%, led by Samsung Electronics, which announced a $10 billion share buyback plan. Stocks in Taiwan also edged higher by 2%. Elsewhere, the MSCI India IMI was flat. Prime Minister Narendra Modi’s party lost a regional election in early November, widely seen as a setback for his reform-minded agenda, which included securing passage of a landmark tax bill aimed at making it easier to conduct business in India. Meanwhile, shares of Dr. Reddy Laboratories plunged 25% following heightened scrutiny of its manufacturing practices by U.S. regulators.

The MSCI Brazil IMI fell 3% amid political and economic turmoil. In early December Fitch cut Brazil’s debt rating below investment grade, to BB+; Moody’s also signaled it may join Fitch and Standard & Poor’s in downgrading the country’s debt. Nelson Barbosa was named finance minister, replacing Joaquim Levy, who resigned amid disagreement within the government over austerity measures. Meanwhile, President Dilma Rousseff sought to avoid impeachment over accusations of manipulating budget figures to mask the government’s poor fiscal performance. In the equity market, shares of BRF, Brazil’s biggest food processor, tumbled 22% on disappointing third-quarter results. Miner Vale fell further as iron ore prices slid to their lowest point since 2009 and as the company faced legal scrutiny over a deadly mining disaster.

Turkish equities were flat in the face of heightened tensions in the Middle East and economic sanctions from Russia stemming from the downing of a Russian jet near the Syrian border. In the third quarter, Turkey’s economy expanded 4%, its fastest pace since early 2014. The country’s current account deficit also shrank further. The lira regained some strength, appreciating 4% against the U.S. dollar.

The MSCI Russia IMI declined 4% as slumping oil prices and weak consumer spending further weighed on Russia’s depressed economy. The ruble fell 10% against the U.S. dollar. Magnit shares dropped after Russia’s biggest food retailer warned its full-year sales would come in at the low end of its forecast due to reduced consumer spending, high inflation and increased competition.

South African stocks slumped 11%, hurt by stagnant economic growth, political instability and losses in the financials sector. President Jacob Zuma changed finance ministers twice in early December, sending the rand to a record low against the dollar and other major currencies. The rand fell 11% against the dollar over the quarter and 25% over the year.

In debt issuance, Romania raised $2.3 billion in 10-year and 20-year government bonds. Poland raised €1.75 billion (US$2 billion) in its biggest euro-denominated sale since January 2014. Lithuania and Uruguay each sold government bonds worth $1.7 billion. Meanwhile, several oil-producing countries issued debt as falling oil prices pressured budgets. Angola and Bahrain sold $1.5 billion of bonds each. In the corporate market, Chinese companies were active participants, with China Petroleum & Chemical Corp. selling over $3.1 billion of bonds.

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses or the collective investment trust's Characteristics statement, which can be obtained from a financial professional, Capital or your relationship manager, and should be read carefully before investing. 

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice. 

Terms and Definitions
A market capitalization-weighted index based on the results of approximately 500 widely held common stocks.
Bloomberg Barclays Global Aggregate Index represents the global investment-grade fixed-income markets.
Dow Jones Industrial Average is a price-weighted average of 30 actively traded industrial and service-oriented blue chip stocks.
MSCI Brazil IMI is a free float- adjusted market capitalization- weighted index that is designed to measure the equity market results of Brazil.
MSCI China IMI is a free float-adjusted market capitalization- weighted index that is designed to measure the equity market results of China.
MSCI EAFE (Europe, Australasia, Far East) Index is a free float-adjusted market capitalization weighted index that is designed to measure developed equity market results, excluding the United States and Canada. Results reflect dividends net of withholding taxes.
MSCI Emerging Markets Index is a free float-adjusted market-capitalization-weighted index that is designed to measure results of more than 20 emerging equity markets.
MSCI Emerging Markets Investable Markets Index measures large, mid and small-cap segments, covering approximately 99% of the free float-adjusted market capitalization of more than 20 emerging equity markets.
MSCI Europe Index is a free float-adjusted market capitalization-weighted index that is designed to measure results of more than 10 developed equity markets in Europe.
MSCI India IMI is a free float- adjusted market capitalization- weighted index that is designed to track the equity market performance of Indian securities listed on the National Stock Exchange and the Bombay Stock Exchange.
MSCI Japan Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market results of Japan.
MSCI Pacific ex Japan Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market results of the developed markets in the Pacific region, excluding Japan.
MSCI Pacific Index is a free float-adjusted market capitalization- weighted index that is designed to measure the equity market results across 5 Developed Markets countries in the Pacific region.
MSCI Russia IMI is a free float- adjusted market capitalization-weighted index that is designed to measure the equity market results of Russian securities listed on MICEX Stock Exchange.
MSCI United Kingdom Index is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market results of the United Kingdom.
MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure results of more than 20 developed equity markets. Results reflect dividends net of withholding taxes.
NASDAQ is a broad-based index that measures all NASDAQ domestic- and international-based common stock listed on the NASDAQ stock market and is calculated using a market-capitalization-weighted methodology.
Represents the U.S. investment-grade fixed-rate bond market.
The J.P. Morgan Emerging Market Bond Index (EMBI) Global Diversified is a uniquely weighted emerging market debt benchmark that tracks total returns for U.S. dollar-denominated bonds issued by emerging market sovereign and quasi-sovereign entities. This index is unmanaged, and its results include reinvested dividends and/or distributions but do not reflect the effect of account fees, expenses or U.S. federal income taxes.
The J.P. Morgan Government Bond Index – Emerging Markets (GBI-EM) Global Diversified covers the universe of regularly traded, liquid fixed-rate, domestic currency emerging market government bonds to which international investors can gain exposure. This index is unmanaged, and its results include reinvested dividends and/or distributions but do not reflect the effect of account fees, expenses or U.S. federal income taxes.