By Weiyi Lim and Anna Kitanaka

Feb. 18 (Bloomberg) -- Global stocks erased their losses for the year as growing confidence in the U.S. economy and a rally in emerging markets restored $3 trillion of value.

The market capitalization of shares climbed to $62.1 trillion yesterday, exceeding its level at the end of December and rebounding from this year’s low of about $59 trillion on Feb. 4, data compiled by Bloomberg show. The MSCI All-Country World Index advanced for a 10th straight day, paring its 2014 decline to 0.7 percent at 8:44 a.m. in London.

Stocks have rebounded from the worst start to a year since

2010 after American unemployment fell to the lowest level since 2008, Chinese trade increased and developing nations from Turkey to South Africa took steps to stem capital outflows. Equity funds tracked by EPFR Global and Citigroup Inc. lured more than

$11 billion in the week to Feb. 12, led by the U.S. as Federal Reserve Chair Janet Yellen said economic growth has picked up and pledged to pare back stimulus in “measured steps.”

 “The recent correction gave investors a great buying opportunity,” said Nader Naeimi, the Sydney-based head of dynamic asset allocation at AMP Capital, which manages about

$131 billion. “This rally is sustainable on the back of the improving global economy. There are signs the ongoing recovery in the developed world is starting to flow into developing economies like China.”

Bull Market

Italy’s FTSE MIB Index has led gains among equity gauges in the world’s 20 largest markets in 2014, climbing 8.2 percent as data showed the euro-area economy expanded more than forecast in the final quarter of 2013. The Standard & Poor’s 500 Index, the benchmark measure of U.S. stocks, slipped 0.5 percent this year through last week, with American markets closed for a holiday yesterday. The Shanghai Composite Index added 0.2 percent.

The MSCI All-Country index has been in a bull market since October 2011, advancing without a 20 percent retreat for 868 calendar days, according to data compiled by Bloomberg. That’s approaching the historical average of 874 days for bull rallies since 1987. The index is valued at about 14 times estimated earnings for the next 12 months, versus its five-year average multiple of 12.

Asset prices aren’t at “worrisome levels,” Yellen said in remarks to the House Financial Services Committee this month, although the Fed is on the lookout for any threat of a bubble.

The U.S. central bank said in December that it would start reducing the monthly pace of asset purchases, citing progress toward its goal of full employment. It announced a $10 billion reduction that month, followed by a cut of the same size in January, to $65 billion.

David Fuller's view

This is a good global summary from Bloomberg. 

Additionally, some bear markets, mostly of the cyclical variety, are occurring in developing countries where governance and politics appear temporarily out of control relative to other countries.  Brazil is an example. 

However, bull market trends remain underway in other developing and also frontier markets where governance and politics are less of a concern and may even appear stable.  Saudi Arabia is an example.

Developed country stock markets remain generally firm, due to continued evidence of gradual economic recoveries and reassurances from central banks that monetary policies will remain accommodative.  Germany is an example. 

The MSCI ACWI Index (weekly & daily) is weighted and contains both developed and emerging markets.  The weighting obviously means that it is heavily influenced by the USA.  Nevertheless, it does show that the global bull market, at least in terms of weighting, is still intact.  However, the negative January effect was a shot across the bows for investors which I would not ignore.  While it is encouraging that Wall Street and many other developed country stock markets have rebounded strongly in February, to date, last month’s short-term oversold condition has been replaced by this month’s overbought reading on Stochastic indicators, one of which you can see on the daily chart above. 

I do not think that we need to be too worried by this, but I would not overlook it.  We can expect a somewhat choppy market environment in 2014, as I have said before.  This can be an opportunity as well as a risk, provided you buy on the dips and only sell, if inclined to do so, on the rallies.   

Inevitably, scare stories are never too far away.  They are part of the fun in our emotional markets, and sometimes mischievously introduced by people who are short and / or want to buy their favourites at lower levels.  Now that Europe is convalescing, China is the favourite scare story, because of its size, political system, previous fast growth, large secondary banking system, mixed stock market performance and particularly strong influence on the commodity markets.  Deflation and disorderly deleveraging are the main scare stories and ‘there is no smoke without fire’.  I have said it before but if China is heading for a hard landing, as many predict (worry?, hope?) we are certainly not seeing evidence of this in the commodity markets right now.