Another eventful month

August was a devastating month for emerging equity markets, with the MSCI EM index plunging by more than 9% in USD.

Not surprisingly, China and the Fed were (again) the main overall drivers behind the correction, as fears of a hard landing and a surprise "devaluation" of the Yuan in China, and uncertainty over the timing of the "lift-off" by the Fed, in an environment of waning global growth, did not fail to affect market sentiment.

All markets and sectors lost out, as stocks, oil and commodity prices were hammered amid strong fund capital outflow.

Chinese stocks, both local and HK-listed, continued their free-fall over the economic and policy uncertainty, and especially over the unexpected Yuan devaluation, despite a reactive cut in interest rates and bank reserve requirements.

India too lost ground with lower than expected growth, as did Korea, Taiwan (despite market support from the government) and ASEAN markets.

The commodity price collapse and currency losses also hit the Latam markets, adding to an economy in recession and a credit downgrade for Brazil.

Emerging Europe, Middle East and Africa also shared in the correction of markets and currencies, with South African gold stocks alone rallying amid a better gold price and a weak Rand.

• We suffered in our portfolios but managed to defend our YTD outperformance due to a slight positive monthly excess return.
• Negative contributions, mainly from holdings in China, Brazil and Taiwan, were offset by positive contributions from the stock selection in Korea, Turkey, India and Malaysia.
• The technology sector is a negative momentum due to uncertainties in the semi-conductor segment as well as some negative performances from Apple’s suppliers. We may go to neutral in the coming weeks
• August brought further confirmation that 2015 will continue to paint a complex environment for emerging markets given that, besides external factors (dollar, oil price, global monetary policies and geopolitics), local politics and reform expectations will remain critical drivers of divergence in stock markets' performance and earnings expectations.
• China and the Fed will undoubtedly remain the key market drivers.
• We are remaining prudent in our stock selection, maintaining our focus on quality stocks with a sustainable growth profile in a diversified and balanced portfolio.