In spite of a “teaser” of a rally and stock markets holding their July 15 lows, equity markets were still in the red for the month of July. The MSCI World Index was down 2.5%, with the MSCI Emerging Market Index (-4.2%) faring even worse.

The biggest loser for the month was the Russia Trading System Index, which lost 15.2% on the back of Putin’s heavy-handed approach to changing the corporate landscape, as well as a plunge in oil prices. The slide in commodity prices also negatively impacted the Bovespa Index, pushing the benchmark 8.5% into the red.

Beneficiaries of weaker resources prices performed relatively well, with the Indian Bombay Sensex Index gaining 6.6% for the month, followed by the Hong Kong Hang Seng Index (+2.8%) and the Chinese Shanghai Composite Index (+1,4%).

Short-term gains notwithstanding, the Chinese Shanghai Composite Index remains the biggest loser for the year to date, down by 47,2%. Given inflationary pressures and a rise in interest rates, the Bombay Sensex Index (-29.2%) is the second-biggest loser since the start of 2007.

Not a single index registered a gain for the first seven months of 2007, at least not in local currency terms. The Bovespa Index, however, bucked the trend in dollar terms with an increase of 5.2%. Needless to say, all stock markets, in both local and dollar terms, are significantly down from their respective previous highs.

This is an exceptionally difficult market to read. I maintain we are still in a primary bear market, but this does not preclude powerful rallies. On a multi-year horizon, however, we are probably in for a convalescence period of relatively low returns. In short, not a dartboard market, but also not necessarily bad from a perspicacious stock-picking perspective.

Click on the image below for a larger table.

Click on charts to enlarge.

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