Dismal year for Global emerging market equities

Hopes of ending a dismal year with a year-end rally were dashed, as global and, even more, Emerging Markets again fell in December. With a loss of around 2.5%, the emerging markets ended 2015 down 17% versus 4.3% for the developed markets (all in USD). 

Continued uncertainty over the Chinese economy and currency, the respective Fed and ECB monetary stances, the ongoing weakening of energy and commodity prices, and geopolitical events were the main drivers behind the depressed sentiment.

Some domestic political issues in countries like South Africa and Brazil did not help. With the exception of Indonesia and India, most Asian markets lost, especially Thailand, which fell by more than 8%. The other regions fell even more, with Brazil, Mexico, Turkey, Russia and South Africa all losing more than 5% in December alone, not least due to currency weakness. 

Most factors behind the December performance – a weak Chinese economy with currency and market uncertainty, monetary policy in the developed markets, a strengthening dollar and falling commodity prices, geopolitical issues, and dismal earnings momentum – were the consistent dominant market drivers in 2015, a year which will be remembered as the fifth-worst since 1988, with a fifth consecutive year of underperformance and the strongest annual EM fund outflow ever. 

Several larger markets, like Brazil, Turkey, Poland, South Africa and Thailand, lost between 25 and 44%, with only one market (Hungary, up 33%) gaining. 

• In this difficult environment, we slightly outperformed our reference index, with stock selection the main driver of both the positive and the negative excess returns. Moreover, for 2015 as a whole, our main strategy showed a strong outperformance – with stock selection also by far the dominant source of excess return – while achieving a positive excess return in all sectors.

• Concerning China, while expectations of further stimulus measures usually act as the main investors' focus, a further restoration of confidence in the government's ability to steer the country away from a hard landing, while continuing necessary reforms, will remain the key market driver. 

• In the currenct context with ongoing uncertainties (China, Fed …), we can expect market volatility to continue in the months to come. The complex environment of external factors and local political and policy uncertainty will act as the main drivers of divergence in Emerging markets performance.
• Counter-trend rallies from the current oversold state of several markets cannot be excluded. 

• We remain prudent in our stock selection, maintaining our focus on quality stocks with a sustainable growth profile in a diversified and balanced portfolio.