Asia weighed on markets

Developed markets further outperformed emerging markets in December, despite continued strong energy prices, held back by Asia. China came under particular pressure, dragged down by concerns over its currency, capital outflows and further property tightening.

Korea suffered from a weak yen and further domestic political issues, despite some improvement in the tech sector. Meanwhile, Taiwan saw some profit taking, while Indian investors remained cautious regarding the impact of the demonetisation policy.

ASEAN markets recovered, with Thailand and particularly Indonesia returning strong performances. Latam markets were rather weak, as some concerns in Brazil, and the expected impact of Trump on Mexico, held the region down despite strength among commodity-driven currencies. EEMEA outperformed, ending the year on a very strong note, boosted by an energy price-driven double digit advance in Russia, as well as strong Central European markets.

South Africa also recovered, while Turkey remained constrained by geopolitical uncertainty. As expected, cyclical sectors also strongly outperformed defensives during December. Overall, 2016 was a positive, but highly challenging year for emerging markets, which gained 8.6% in USD, outperforming developed markets by 3.5%, with high volatility and heavy sector rotation out of defensives and into deep cyclicals.

• ˜We remain overweight on Asia, but we resumed a neutral weighting in India, pending greater stability after the demonetisation process.
• We are underweighting telecoms, as they will be weighed down by the interest-rate rise like everywhere else in the world.
• We are still overweighting energy, and this strategy seems to be profitable,
• The rest of our strategy remains unchanged