Stocks flying, oil crying as 2017 hits halfway point

london - World stocks could be about to record their best start to a year since 1998

World stocks could be about to record their best start to a year since 1998, when global markets were recovering from the Asian crisis, while oil and the dollar are facing their worst first-half in years.

It has been a six months marked, first, by the crumbling of so-called Trump trades that were premised on US President Donald Trump's pledges of multi-trillion dollar spending. The second feature has been a political and growth outlook shift in Europe which has lured investors back to the continent.

Emerging markets and Europe have seen 16 to 17 per cent gains on a dollar-adjusted basis. This has boosted world stocks around 10 per cent so far this year.

Oil on the other hand is 2017's worst performer, despite almost 2 million barrels-per-day of Opec supply cuts. Undercut by high output from shale and some producers such as Nigeria, Brent crude futures have slumped 20 per cent in their biggest first-half drop since 1997.

But equities have held up well despite a hefty tech share selloff earlier in June and a run of softer US economic data which hint at slowing price growth and a major setback for the 'Trumpflation' trades in vogue at the start of 2017.

Despite two Federal Reserve rate hikes already this year, the dollar has fallen 4.5 per cent against the world's other top currencies - its worst start to a year since 2006.

"From a global perspective, it is increasing the appetite for risky assets," said ABN Amro's chief investment officer Didier Duret.

Duret also noted the defeat for far-right, anti-establishment parties in French and Dutch elections, as well as a synchronised recovery in world growth. The eurozone is seen growing two per cent this year, its best run in a decade, while latest data shows consumer confidence at a 16-year high.

Emerging markets too have enjoyed a trade and growth bounce.

While US stocks have returned almost 10 per cent year to date, many investors reckon European stocks offer better value - funds polled by Reuters every month have just upped eurozone equity exposure to a nine-month high.

"Previously, there were lots of reasons not to invest in Europe. Now Europe is growing faster than the US," said Pictet Asset Management's chief strategist Luca Paolini, who prefers European and emerging stocks.

Emerging markets have shrugged off the US rate rises and the oil and tech tumbles. While emerging equities are the top performers, bonds in emerging market currencies have returned almost 10 per cent in dollar terms, while hard currency sovereign debt is up six per cent.

"At the end of last year, everyone was long dollar but suddenly people realised the dollar was getting weaker. Usually when that happens, it's very good for EM assets," said Francois Savary, CIO of Prime Partners. - Reuters