Best Performing Asset Class of H1 2013 is...

The best performing asset class of 2013 year to date are Japanese and US equities with gains of 15.5% for TOPIX, 13.4% for NASDAQ and 13.8% for the S&P 500. These markets have both been spurred on by the implementation of monetary policy from their respective governments. In the US, the Federal Reserve began purchasing $85 billion a month of mortgage backed securities and Treasury securities through QE 3 at the end of 2012. The Bank of Japan announced an addition to their QQE program on April 4th, pledging $1.4 trillion towards the purchase of government bonds in an effort to battle deflation that has persisted for over a decade.

The Bank of Japan is seeking to increase growth and end its deflationary cycle, targeting 2% for inflation by 2015 or early 2016 through the implementation of its monetary policy. With the target for inflation comes the increased likelihood that the equities run will continue as Japanese investors seek to own equities rather than cash as it loses value. The weakening Yen helps as Japanese assets are denominated in foreign currencies and liabilities are denominated in Yen. Additionally, a weaker Yen boosts companies' earnings as the majority of Japanese companies rely on exports for sales.

The month of May was full of speculation leading up to the announcement of the tapering of QE 3 which caused the 10 year US treasury bond yield to rise meteorically from lows of 1.63% to 2.62%, a 100 basis point movement in a little under two months. Speculation as well as the actual announcement on June 19th by Fed Chairman Bernanke caused global investors to move $80 billion from bond ETF's and mutual funds in June alone. Initially, the comments from Bernanke jolted the equities markets, resulting in a 4.8% loss in the S&P 500 and a 4.6% drop in the NASDAQ, but eventually markets managed to resume the bull market trajectory. The resurgence in housing and auto sales has given additional confidence to many US investors and as they compare domestic equities to fixed income areas such as bonds they see more room for the bull market in equities to grow.