Fear and expectations drove equity markets in 2011, as investors fled in droves. Typically they withdrew from investing in smaller-to-intermediate growth stocks, and ran to larger dividend paying stocks, driving the valuations of many companies, such as utilities, to what we feel are excessive. Concerns, fuelled by the credit downgrades and potential debt defaults in European countries, such as Greece and Italy. The front pages of the newspapers also told us about the overthrowing of governments in the Middle East, as well as the “Occupy” protest around the world.

Global equity markets suffered dramatically in the third quarter, on the back of the European debt crisis. Fears of a Greek debt default, and the implications for the rest of Europe, sent investors to the sidelines. At the end of the quarter, the stronger members of the ECU were designing ways to create a stabilization (bailout) fund of up to two trillion dollars. Citizens of stronger nations, such as France and Germany, find it politically distasteful to bailout other governments who have lived beyond their means for years. So there are no easy or quick solutions to these problems.

Risk aversion was the key phrase in the latter stages of the last quarter. Markets sold off in reaction to a number of political and financial issues taking place around the world. The noise from government upheavals in the Middle East, the Greek central bank bailout, and U.S. debt problems all sent investors running for the sidelines. We could see this flight to safety, not only in the sell-off in the equity markets, but also in the flow of funds out of certain areas. Large caps vastly outperformed smaller capitalized companies.

As greater confidence in a global recovery took hold in the fourth quarter, stock markets climbed sharply higher. Resource-based economies, in particular, performed quite well, with the Toronto Stock Exchange up 8.7% this quarter alone. Two of the best performing sectors were Materials and Energy, which were up 14% and 13% respectively. Continued restocking in China and other emerging markets, as well as modest economic growth in North America, has fueled this continued demand for commodities.

Stock markets around the world rebounded nicely in the third quarter after the selloff we witnessed earlier this spring. Resource-based economies such as Canada did very well, with the TSX ending the quarter up 9.5%, led by the materials sector, which closed 18% higher. Strong demand for commodities came from a recovering global Gross Domestic Product (GDP), which the International Monetary Fund (IMF) now predicts will come in at 4.8% growth this year, and 4.2% next year.

After a strong start to 2010, equity markets in North America sold off in the second quarter with the TSX off 6% and the S&P 500 down by 12%. Fears of a slowing global economy or a double-dip recession sent investors to the sidelines. A number of issues were fueling these fears during the quarter. A handful of European countries, led by Greece, saw their debt downgraded, raising fears that the Euro and the European Union may be on the verge of collapse.