There was minimal turbulence in asset prices in October. Aside from commodities, the major asset classes posted another solid batch of gains, building on September’s bull run. The Global Market Index (GMI) posted a 2.8% increase last month, leaving it higher on the year by a solid 12.0%.
Equities in emerging markets continued to revive in October, delivering a strong 4.9% gain that led the way among the major asset classes for the month. The pop was enough to give these stocks a small gain on a year-to-date basis and reverse most of the losses that had accumulated during a sharp correction in the spring and early summer.
Meantime, commodities broadly defined are still bumping around the bottom of the performance ledger, shedding 1.5% last month. This is highly revealing as commodities stuck out like a sore thumb. Methinks it has to do with USD rebalancing. The QE effect clearly has not gone into "new investments or new economic activity", thus the demand for commodities has remained benign. The bulk of the liquidity has flowed towards banks' deposits and maybe some bargain hunting in distressed properties.
The key drivers of GMI’s buoyant year-to-date results so far in 2013 are stocks in the developed world. US equities in particular have been flying, with the Russell 3000 rising nearly 27% this year through October 31. In close second place: foreign stocks in developed markets via the MSCI EAFE Index.
In other words, underweighting in the developed world's stock markets has come with a hefty opportunity cost in 2013. You might not know it but its close to the end of the year and 2013 had been a big BULL market for US and developed markets equity. It is likely that those markets will continue to rise to close the year high so as to prepare for a sound bonus season come January 2014.