2007 Halftime Report: A Global State Of Play

Look beyond the doom and gloom headlines -- global markets had a terrific first six months in 2007. Only two markets in the world -- Russia and Saudi Arabia -- are down this year. Despite its occasional and inevitable hiccups, global markets have been in a long and steady ascent. Since Jan. 1, the MSCI World Index was up 7.7% -- coincidentally identical to the gain in the Dow Jones Industrial Average. Emerging markets delivered almost double those returns, clocking in a 14.5% gain. Overall, global markets had a much stronger first six months in 2007 than last year, when markets pretty much treaded water. One consistent theme: the relentless decline of the U.S. dollar which again provided strong tailwinds for U.S. investors across almost every market.

The Halftime Report: "Old" and "New" Europe

For a continent supposedly hobbled by high taxes and doddering economies, stock markets in Old Europe did surprisingly well. The FT Euro 100 index's gain of 10.3% comfortably edged out the S&P 500's gain of 6.2%. Economic laggard Germany was the surprising star, with its market up 20.5%. Both the Netherlands and Greece managed double-digit percentage gains of 11% and 10.2%, respectively. Free market reforms in both Sweden, up 7.6%, and newly elected Nicolas Sarkozy's France, up 9.2%, had yet to make their impact felt in an important way in the first six months of 2007. Outside the Eurozone, the tiny Scandinavian economies proved their investment mettle with oil rich Norway notching an 18.5% gain, and Denmark posting a double-digit percentage jump of 10.3%.

In "New Europe", Poland's star shined the brightest, with the market up 34.2%. Turkey, despite political turmoil and tensions between secular and religious factions, was up 22.8%. Hungary was a big surprise, with its market rising 19.1% -- driven less by the strength of its own teetering economy than by the share purchases of increasingly acquisitive strategic investors -- whether they be Russian oligarchs or Austrian corporations. With Vladimir Putin's crackdown on both businessmen and the media, its no wonder Russian businessmen (and foreign investors) are fleeing to the West. Not surprisingly, Putin's rumblings -- combined with an oversupply of new offerings on the stock market -- drove Russia down 2.4% over the first six months of 2007. That's one of its worst showings in the past six years.

The Halftime Report: Latin America

Latin America has been the surprise of the year. With the commodity boom waking from its year-long slumber, Brazil has boomed. The Latin American market soared 33.2% during the first six months of the year. Brazil's orthodox economic policies, appreciating currency and natural resource-based economy, have made it a surprising favorite among emerging market investors. Chile ranked #2 in the region with a gain of 20.9%. Mexico was up a respectable 16%.

Thanks to a 27% surge in the share price of America Movil (AMX) between March and June, Mexican tycoon Carlos Slim is the world's richest man, overtaking Microsoft founder Bill Gates. Worth an estimated $67.8 billion, Slim is close to $8.6 billion wealthier than the Microsoft founder. It was only in April that Forbes magazine reported that Slim had overtaken billionaire investor Warren Buffett for the No. 2 spot in the publication's rankings of the world's richest people. Even Venezuela's market was up 17.5%, despite Hugo Chavez's anti-business rumblings. Columbia and Argentina were the relative laggards with returns of 8.45% and 5.6%, respectively.

The Halftime Report: Asia

For Asia, it was both the best of times, and the worst of times.

The domestic Chinese market continued accelerating into bubble-like heights. A drop of 9.3% in February gave global markets their only real shudder this year. Subsequent drops were all but ignored. The Shanghai market now is down more than 20% off its peak -- though it's still up strongly for the year.

The Japanese market continued to disappoint investors. Even though the benchmark Nikkei 225 was up only 3.6%, it looked even worse in dollar terms -- eking out a 0.8% gain. Thanks to 0.5% interest rates, the Japanese yen is virtually the only currency in the world that was weaker than the dollar.

Otherwise, Asia was strong across the board. Malaysia was the star of the last six months by jumping 25.4% in dollar terms. South Korea, a laggard over the past few years, also shone with a gain of 21.1%. Other gains occurred in Australia, 17.1%, Indonesia, 15.9%, Singapore, 17.1%, and Thailand, 18.6%. India was a relative weakling with a rise of 13%, while Taiwan notched virtually all of its 12.3% gain in May and June.

The Halftime Report: Africa

Defying headlines about war and terrorism, Israel achieved a 17.9% gain. Resource-rich South Africa delivered a respectable return of 11.4%. Saudi Arabia continued its fall from grace and dropped 11.6% -- showing it has something in common with the Chinese market bubble and leaving it on the wrong end of a global stock market mania.

Half Time Report: Hedge Funds Losing their Shine?

Hedge funds may be hitting the headlines, but they have not been hitting the ball out of the park as far as returns are concerned. Despite attracting top financial talent and employing arcane-sounding strategies ("equity long/short," "event driven," "market neutral") that lie beyond the capabilities of mutual funds, hedge funds as a group returned only 5.9% over the first six months of 2007. To be fair, hedge funds don't promise more than 12-15% of steady, annual returns. But the last six months show how hedge fund strategies can lag when times are good. It's only when markets swoon 10%-20%, and investors head for the exits, that a steady 5.9% looks terrific.

With all of the talk of sub-prime woes, the slowdown of the U.S. economy and corporate profits, and the dangers of the yen carry trade, the strong performance of global markets may be surprising. But the underlying global megatrends -- the commodities boom, solid economic growth in emerging markets, and expansion in telecommunications and banking -- all are bullish for global equities. And with global markets traditionally clocking their strongest gains in the fourth quarter, 2007 may turn out to be a very good year, indeed.