World Markets Review for March 2015 | American Funds

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Market Commentary

April 2015

World Markets Review for First Quarter 2015

Global stocks advanced amid rising M&A activity, heightened central bank stimulus measures and signs of renewed economic growth in Europe and Japan. Health care stocks enjoyed a strong rally, driven by several large acquisitions, while the energy sector lagged as oil prices continued to slide. U.S. bonds rallied, with investors favoring them for their relative value as yields in Europe and Japan touched record lows. The dollar rose sharply against the euro and most other currencies.  

Index Returns (Quarter)

March 2015

Q1 2015



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Local %


Dollar %

Local %


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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 posted modest returns despite hitting new record highs in March as investors contended with uncertain global growth, oil price volatility and the timing of the Federal Reserve’s impending interest rate hike. The Standard & Poor’s 500 Composite Index rose just under 1%, while the Dow Jones Industrial Average eked out a 0.3% total return. Growth stocks outpaced value-oriented stocks. The Nasdaq composite advanced nearly 4%, rising above the 5,000 level for the first time since 2000. Dollar strength in the face of monetary easing elsewhere in the world helped keep a lid on U.S. share prices. Several companies warned that currency headwinds were taking a toll on sales and revenues, including construction equipment maker Caterpillar and biopharmaceutical leader Bristol-Myers Squibb.

Mergers-and-acquisitions activity buoyed the health care and consumer discretionary sectors, which rose 7% and 5% respectively. Injectable-drugs maker Hospira soared 43% — the best quarterly return in the S&P 500 — as it agreed in February to be acquired by Pfizer for around $17 billion in cash and assumed debt. Pfizer shares advanced 13%. On the other hand, AbbVie shares fell 10% as questions surfaced over whether it had paid too much for cancer-focused biotech Pharmacyclics following a bidding war with Pfizer and Johnson & Johnson. The deal is valued at around $21 billion. Several health insurers and managed care providers notched gains above 20% after strong fourth-quarter earnings announcements, including Aetna, Anthem and Cigna. Among consumer discretionary stocks, cable operator Charter agreed to acquire rival Bright House Networks for $10 billion in cash and stock. Several retailers benefited from better-than-expected earnings reports, including Amazon, Urban Outfitters and Kohl’s. In the consumer staples sector, Kraft and Heinz agreed to merge, creating a packaged foods giant with a value of around $49 billion.

The utilities sector lagged, falling 5% as a rise in interest rates loomed. The energy sector declined 3%. U.S. crude oil futures fell 10%, ending March under $48 a barrel. Refiners were a bright spot, gaining 17%. But Exxon Mobil fell 7%, and many exploration companies and oil services firms saw double-digit losses.

U.S. economic data was mostly solid. Fourth-quarter GDP growth was confirmed at 2.2%, unchanged from the earlier estimate. Employers added 295,000 new jobs in February, and the unemployment rate fell to 5.5%. A steep drop in gasoline prices helped buoy consumer confidence, and consumer spending rose in February for the first time in three months, a lull that was largely blamed on harsh winter weather. But the Institute for Supply Management’s purchasing managers index showed that manufacturing activity, while still in expansion mode, hit a 14-month low of 51.5 in March, with a labor slowdown at West Coast ports blamed in part for the drop. In her semiannual testimony before the Senate Banking Committee in February, Fed Chair Janet Yellen said a rise in interest rates would be considered on a “meeting-by-meeting” basis, citing sluggish wage growth and low inflation as concerns. Yellen reiterated in March that the central bank would proceed slowly in hiking rates.

Bonds rallied, with investors favoring U.S. issues for their relative value as yields in Europe and Japan hit record lows. The Barclays U.S. Aggregate Index rose 1.6%. The yield on the benchmark 10-year Treasury note declined 25 basis points to 1.92%. Though inflation remained weak, Treasury Inflation Protected Securities notched a 1.4% gain. Corporates advanced 2.3% and spreads to Treasuries were largely unmoved at 129 basis points. High-yield bonds, including many energy-related issues, were volatile, but gained 2.5%. The new-issue market got off to a brisk start. Notable deals included a $21 billion offering by Actavis — the second-largest U.S. deal on record — to help finance its acquisition of Allergan. Mortgage-backed securities and municipal bonds gained 1.1% and 1.0%, respectively.

The S&P/TSX Composite Index of Canadian stocks rose 3%. Shares of Valeant Pharmaceuticals gained more than 50% as it fended off an attempt by Endo International to spoil its acquisition of U.S.-based biotech Salix. Financial and energy stocks fell. The Bank of Canada surprised markets in late January with a 25-basis-point cut in the overnight rate, to 0.75%.


European stocks powered ahead, supported by improving economic data, falling oil prices and an aggressive new stimulus program launched by the European Central Bank. Despite renewed concerns that Greece might exit the eurozone, most national stock markets enjoyed double-digit gains, notching some of the best quarterly returns in years. The euro, meanwhile, tumbled to multiyear lows against the U.S. dollar. Overall, the MSCI Europe Index rose 12% in local currency and 3% in dollar terms.

Signs of a brighter economic outlook emerged in the form of accelerating retail sales, rising export activity and improved credit availability for businesses and households. Much of the optimism was attributed to the start of the ECB’s €60-billion-a-month bond-buying initiative, which is designed to encourage lending and stimulate economic growth. The highly anticipated U.S.-style quantitative easing program started on March 9, triggering a strong rally in European stock and bond markets.

Consumer discretionary stocks led markets higher, rising 18% as a weakening euro made European exports more attractive. Shares of Daimler soared more than 30% amid record-high Mercedes-Benz sales in the U.S. and China. Volkswagen and BMW shares also rallied. Industrial stocks rose 14% amid a moderately improving global economic outlook. Airbus shares climbed higher on rising demand for more fuel-efficient jets, including its best-selling A320 plane.

Health care stocks gained 13%. Novo Nordisk shares advanced on investor optimism for its new long-acting insulin Tresiba, which was resubmitted for U.S. regulatory approval in March. Shares of Bayer advanced on strong earnings guidance from the company. Information technology stocks also rallied. Shares of SAP gained on news of cost-cutting plans as the German software giant shifts its business model toward cloud-based applications. In the materials sector, shares of BASF moved sharply higher after the world’s largest chemicals maker reported a 25% increase in quarterly profit.

Energy stocks lagged the market, gaining about 3% as falling oil prices appeared to stabilize, albeit at low levels. Shares of Royal Dutch Shell retreated after the oil company said it would freeze dividend payments at current levels and slash costs by about $15 billion during the next three years. Utilities stocks also failed to keep pace with the overall market, rising less than 1%. Shares of National Grid declined amid profit-taking in the sector and concerns about the impact of potentially higher U.S. interest rates.

Events in Greece rattled financial markets at times. The election of a left-wing anti-austerity party in January raised fears that Greece might default on its debts and abandon the 19-member eurozone. However, a last-minute debt reprieve in February gave the struggling nation more time to negotiate with international lenders, calming markets at least in the short term. Amid the uncertainty, yields on Greek 10-year bonds fluctuated wildly, ending the quarter at 11.6%.

European bonds rallied across the continent as the ECB’s long-awaited quantitative easing program went into full effect. The central bank is expected to buy as much as €1.1 trillion of euro-zone bonds over time, including sovereign and corporate debt. The yield on Germany’s benchmark 10-year bond declined 36 basis points to end the quarter 0.18%. The euro fell more than 11% against the dollar. In the corporate bond market, Coca-Cola sold $9.5 billion of euro-denominated debt, the largest ever sale of such bonds by an American company.


Japanese equities rose amid strong corporate earnings and optimism that companies would begin raising dividends. Further boosted by data showing that the nation’s economy had exited recession, the MSCI Japan Index gained 10%. Overall, the MSCI Pacific Index rose 9%.

Health care was the top-returning sector, advancing 23%. Shares of drug maker Eisai jumped 84% after an experimental Alzheimer’s treatment it co-developed slowed the disease’s progression in a study. Positive clinical trial results also lifted Takeda, which gained 22%. Energy was the only sector to see negative returns; it lost 1% amid lower oil prices.

Automakers had mixed results. Toyota shares advanced 12% as the company reported better-than-expected quarterly earnings and raised its full-year profit forecast due to the weak yen and strong SUV sales. Honda climbed 11% despite lowering its full-year forecast due to recall costs. Nissan rose 17%. On the other hand, Subaru maker Fuji Heavy Industries and Mazda declined 6% and 16%, respectively, after their full-year forecasts fell short of expectations.

A positive full-year forecast also lifted electronics component manufacturer Murata, which gained 26%. Meanwhile, robotics manufacturer Fanuc rose 32% amid expectations that it would initiate share buybacks or dividends. In the financials sector, Mitsubishi UFJ rose 13%. Its fiscal third-quarter profit climbed 36% from a year earlier, partly driven by the growth of overseas loans. After rallying 36% last year, Sony shares advanced 29% as the firm raised its full-year forecast, citing cost cuts and strong sales of sensors and videogames.

In contrast, disappointing quarterly results weighed on electronics conglomerate Hitachi and mobile phone carrier SoftBank, whose shares declined 8% and 3%, respectively. SoftBank’s fiscal third-quarter earnings were hurt by slower subscriber growth in Japan and losses at U.S. unit Sprint. Lower-than-expected earnings also weighed on construction equipment maker Komatsu.

In the October–December quarter, the Japanese economy exited a recession sparked by a sales tax hike last April. However, the rebound appeared soft: fourth-quarter GDP growth was revised downward to an annualized 1.5%. Although exports rose, business investment declined. In February, industrial output slid 3.4% from the prior month, while household spending experienced its 11th consecutive monthly drop over the year-earlier period. On the other hand, major corporations, including Honda and Toyota, appeared to be heeding the government’s call to raise worker pay.

The Bank of Japan left its stimulus program unchanged as hopes of achieving its 2% inflation target faded away amid lower oil prices. The bank’s preferred gauge of inflation reached zero in February from a year earlier. The yen ended the quarter slightly weaker against the U.S. dollar.

Australian equities rose as investors flocked to the nation’s high-yielding banks following news that the Fed might raise rates later than expected. The “big four” banks rose by double digits, helping fuel the MSCI Australia Index’s 10% gain. Elsewhere in the financials sector, investment bank Macquarie advanced 32% after raising its full-year forecast. Miners experienced mixed results. BHP Billiton rose 8% after it reported a less-than-expected drop in first-half profit. However, Fortescue Metals sank 28% after it scrapped a planned bond sale to refinance its debt. All sectors rose except energy, which fell 4%.

The Reserve Bank of Australia cut its benchmark rate to a record low in February in an effort to lift growth. GDP grew 2.5% in the fourth quarter from a year earlier, while the Australian dollar declined 7% against the U.S. currency.

The MSCI Hong Kong Index rose 6%. Insurer AIA Group gained 13% after reporting a better-than-expected 22% jump in full-year profit. In contrast, the four Macau gaming companies each fell by double-digits amid continued reports of declining tourist traffic.

Emerging markets

The MSCI Emerging Markets Investable Market Index (IMI) rose 2% amid expectations for looser monetary policies around the world. Most currencies continued to slide against the U.S. dollar, though a few regained some ground late in the period as the U.S. Federal Reserve indicated it was likely to hold off on raising interest rates. U.S. dollar–denominated emerging markets debt advanced as investors appeared to search for yield against the backdrop of lower global interest rates. But currency losses held back local bond returns for U.S. dollar–based investors.

Technology led sector gains, rising 8%. Robust earnings helped fuel shares of Internet companies and several smartphone heavyweights. Taiwan Semiconductor Manufacturing, which supplies chips to Apple, posted record quarterly profits and unveiled plans to significantly increase its spending on advanced chip technology as competition heats up. Meanwhile, Samsung Electronics shares climbed, fueled by the firm’s more optimistic outlook following a series of weak quarterly earnings reports and the announcement of its new flagship Galaxy 6 smartphone in early March. China’s Tencent continued to rise as online game sales helped support quarterly profits. The Internet giant also made headway in the competitive and rapidly growing market for other online services; users of Tencent’s WeChat application sent 1 billion electronic “red envelope” Lunar New Year gifts via smartphone in February.

Energy stocks climbed 2% after a more-than-25% drop last year on expectations that oil prices may have bottomed. Shares of Russian oil producers Gazprom and Lukoil both advanced. Russian stocks rebounded on the whole, climbing 19% after months of steep declines. The ruble gained 3% following a 45% depreciation in 2014. Russian bonds bounced back despite a series of sovereign credit downgrades. Moody’s lowered Russia’s rating to below investment grade in February on the heels of a similar cut by Standard & Poor’s in January. Local bonds gained 16%, while Russian U.S. dollar debt advanced 11%.

Brazilian stocks fell 15%, hurt by concerns about deteriorating economic and political conditions and the sharp depreciation of the real. Ordinary shares of oil producer Petrobras lost 17% as a corruption scandal rocked the state-owned firm. Moody’s slashed Petrobras’ credit rating to below investment grade following a cut in January; Fitch also lowered Petrobras’ rating to the lowest investment grade. Brazilian bonds declined, hurt by worries about a potential sovereign downgrade. Local bonds sank 15%, dragged lower by the 17% slide of the real. Brazil’s central bank continued to hike interest rates, lifting the benchmark Selic twice, to a six-year high of 12.75%, to help rein in inflation.

Asian equities posted solid gains as several countries adopted looser monetary policies. The MSCI China IMI climbed 8%. Continued monetary easing seemed to temper worries about slowing economic growth, with the People’s Bank of China announcing an interest rate reduction in February following a cut in November. Indian equities rose 6%; the central bank twice lowered interest rates. The government released a relatively modest budget emphasizing infrastructure spending and social welfare programs in late February. Health care and technology stocks helped lead gains. Sun Pharmaceutical Industries rose as it completed its $4 billion merger with Ranbaxy Laboratories. Infosys Technologies advanced; the business process outsourcing firm continued to win new contracts. Technology stocks helped lift equity markets in Taiwan and South Korea, which rose 4% and 6%, respectively. South Korea’s central bank surprised markets by cutting interest rates to a record low of 1.75%.

In debt markets, Turkish local bonds lost ground amid concerns about the independence of the country’s central bank as the government further pressed for faster interest rate cuts. Local Turkish bonds and the lira each fell 10%. Meanwhile, a number of emerging markets sovereigns and companies issued debt in an effort to lock in lower interest rates. Colombia sold $2.5 billion in two international debt sales; the Dominican Republic also issued $2.5 billion in bonds after Fitch raised its sovereign credit rating last November. In corporate issuance, Mexican state-run oil firm Pemex sold $6 billion in debt in January to help fund its $27 billion investment plan.

Developed market returns are in local currency and include net dividends. Emerging markets returns are in U.S. dollars.

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

This material is intended for use by financial professionals or in conjunction with the advice of a financial professional.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional 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 Australia Index is a free float- adjusted market capitalization- weighted index that is designed to measure the equity market performance of Australia.
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 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 Hong Kong Index is a free float-adjusted market capitalization- weighted index that is designed to measure the equity market results of Hong Kong.
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 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.
S&P/TSX Composite Index is a market capitalization-weighted index that is the headline index and the principal broad market measure for the Canadian equity markets. It includes common stocks and income trust units.
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.