Emerging markets far outpaced these gains. China's Shanghai Composite index, for example, rose by more than 70% on a dollar basis, India's BSE Sensex 30 index by almost 80%, and Brazil's Bovespa index by more than 130%.
Now with signs of global economic recovery, expect a continuation in the equity rally generally, as well as a leading role for the emerging economies, though perhaps without quite so much drama or by such a wide margin.
Apart from prospective economic growth, the key to this ongoing rally lies in a continued flow of central bank liquidity. The Federal Reserve and just about every other central bank had responded to the financial crisis by easing monetary policy dramatically.
The Fed has taken its benchmark federal funds rate down by 175 basis points to 0.25% currently from 2.0% in October 2008. The European Central Bank has cut its benchmark rate by 325 basis points during this same time to 1.0% presently, and the Bank of England has brought down its benchmark rate by 450 basis points. Accordingly, bank reserves have soared in Europe, Asia and the United States.
This flow of liquidity has certainly supported the positive market gains so far, and, if remarks by Fed Chairman Ben Bernanke are any guide, this will continue well into the new year. Though later in the year, the Fed and the world's other central banks should begin to again absorb this excess of liquidity. Global markets should by then have enough genuine economic momentum behind them to withstand the monetary policy change.
In this expected economic and policy climate, the American market promises further gains. Though the recovery doubtless will develop more gradually than past cyclical upswings, the operating leverage of American industry is such that even moderate increases in economic activity can generate impressive earnings gains, very likely in excess of 25% in 2010.
Stock prices should reflect at least some of that profits rebound. Adding to these earnings and market prospects, the dollar's lost value on foreign markets, not just in the last few months but more fundamentally and meaningfully for the last five to seven years, has relieved American industry of the global pricing headwind it has faced for decades.
With the dollar likely to continue its long-term losses, however, prospects abroad may look still better than in American markets.
For European investments, currency is the primary basis to any premium returns over America. Otherwise, there is little to suggest that stocks in these developed European markets will outperform American indices.
These economies have the same policy burdens with the United States, while the legacy of past excess should keep their recovery pace as moderate as America's.
If anything, earnings in developed Europe will grow somewhat more slowly than in the States, not the least because European exporters and producers generally no longer have the advantage of undervalued currencies. But still, with little chance of a dollar rally in the current climate and the possibility of dollar declines, the currency effect should add enough return to make some European exposure attractive.
Japan may offer more than either America or developed Europe on at least three accounts. First, Japan was spared much of the strain of the financial crisis that was so virulent in America and Europe and that has left scars.
Second, Japan's new government may offer a new growth strategy based on the consumer, something the country has needed for some time, though the government's policy agenda remains confused in other respects.
Third, Japan has close economic ties to China, which continues as a major engine of world growth that should buoy Japanese exports into 2010, despite the recent strength of the yen, and consequently overall Japanese growth as well.
Compared to all these developed markets, emerging economies, particularly in Asia and in parts of Latin America, offer considerably more potential for the new year and for the longer term.
To be sure, the Chinese, Indian, South Korean, Brazilian, Chilean and similar markets suffer considerable volatility. They can surge way ahead of the fundamentals at times and then suddenly undergo periods of loss as dramatic and intense as their gains. But by and large, their more favorable fundamentals should lift these markets accordingly over time.