Asian markets weigh on the global performance of Emerging Markets

The emerging equity-market uptrend, initiated after a bottom reached in February, continued in April, helped by a more dovish, Fed-related, weakening USD, Chinese fiscal stimulus and fewer CNY devaluation concerns, the latter both supporting higher commodity and energy prices, even despite no OPEC deal over a production freeze.

In spite of this, emerging markets as an asset class slightly underperformed, due to weak Asian regional markets.

In Asia, except India, all markets lost, with Taiwan technology stocks especially suffering from weak Apple and TSMC results. The other emerging regions – boosted by the commodity-linked markets and currencies – gained strongly.

In Latam, Brazil added 10% to its already strong YTD performance, with the vote in favour of an impeachment of president Rousseff adding to the strong commodity prices, at the expense of Mexico, which lost on valuations and a rotation towards Brazil.

Also, Peru, Colombia and EEMEA markets like South Africa and Russia were strong beneficiaries of the improved sentiment towards Commodities and Energy. Sector-wise, unsurprisingly, Energy and Materials were the winning sectors at the expense mainly of the IT sector.

• Following a challenging first quarter, and despite strong volatility, in April we managed to slightly outperform, helped by a combination of country positioning (Brazil, Taiwan, China) and stock selection (Vale, Yandex, TAL Education, Sabesb, SKS Microfinance, ...), which offset some profit-taking pressure in some earlier winning stocks – especially in Mexico and Korea – like LG Chemical, Hyundai Motors and Gruma.   
• With ongoing uncertainty over China, the global economy, central bank policy, the dollar and geo-politics, we can expect market volatility to continue.
• The complex environment of external factors and local political and policy uncertainty will continue to act as the main drivers of divergence in emerging market performance.
• Despite still-fragile fundamentals, but with investor repositioning after the multi-year-long oversold state of the emerging markets, more market rotation into this asset class, but with the necessary volatility, 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.