One of the worst starts ever to a new year for global emerging market equities

EMERGING MARKET STRATEGY

Emerging equities were again under heavy selling pressure during January in one of the worst starts ever to a new year. Lower oil prices, increased uncertainty over CNY policy and Fed tightening amid a slowing US economy were behind the worsening investor sentiment and drove a sharp sell-off.

Chinese equities had a tough month (especially A-shares, which lost more than 20%) due to the new circuit breakers and to expectations of an imminent further weakening of the currency. But there was some positive news, with the release of Real Estate data showing that overcapacity seems to be a thing of the past.

India witnessed some profit-taking while Thailand and Malaysia were the best-performing markets in the region, thanks mainly to solid domestic activity and to few economic indicators being above forecasts.

Commodity exposure and currency volatility saw South Africa, Brazil and MENA impacted the worst, whilst Turkey and smaller markets such as Mexico proved resilient.

• We outperformed the benchmark, with stock selection mainly behind the positive excess return.
• Technology (My E.G. Services, KCE electronics) and Healthcare (mainly NMC Health) contributed positively, a performance partly countered by some weakness in Chinese Financials (Ping An, China Merchant Bank).
• With the ongoing uncertainty over China, the Fed, the global economy and geo-politics, we can expect market volatility to continue in the months to come.
• We also remain positive on India, as the recent sell-off appears to be a point of entry and because of signs of monetary policy remaining supportive at least for the next 24 months.
• We have also made some selective bottom-fishing in Financials in China and India.
• The complex environment of external factors and local political and policy uncertainty will act as the main drivers of divergence in EM performances.
• 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.