Last month, the Emerging Markets continued their broad-based market recovery, which was triggered by the Brexit vote in the UK and as markets welcomed the Fed's decision to keep an easier monetary policy for longer.

The growing positive sentiment towards emerging markets was reflected in most markets shrugging off adverse drivers like a 20% oil-price correction, a depreciating Chinese currency and even the failed military coup attempt in Turkey.

With the exception of Turkey (coup), Russia (oil price), Malaysia (oil and politics) and Colombia (rate hike cycle, oil price), all emerging markets gained grounds. Currency gains also gave an additional boost to the markets, in particular South Africa, but also Brazil, which continued their incredible rally, gaining almost 10% and 60% YTD!

In Asia, China recovered on improving consumption and hopes of further economic support, but most gains went to Thailand and Indonesia, the latter profiting from a tax amnesty announcement and a government reshuffle. Taiwan and Korea, too, recovered, both benefiting from the strong interest in the technology sector and a slow global export recovery. India also rose nicely, anticipating a long-awaited approval of the Goods and Services Tax reform by the Upper House, which would be a significant structural step towards a more efficient Indian economy.

  • Although we made some strong gains last month, we slightly underperformed the rally, as the very positive contribution from the India and Brazil exposure was not enough to fully offset the strong recovery of South Africa, Taiwan and Korea.
  • Events in Turkey also had a limited adverse impact on our portfolios.
  • Stock selection also worked in both directions, with a strong contribution from stocks like Bharat Fin. Incl. (India) and Samsung Electronics, and profit-taking in earlier strong gainers like NMC Health and Xinyi Solar.
  • With the direction being taken by the global economy, China, “Brexit”, the Fed, US elections, the USD and the RMB as some of the main market drivers, emerging markets can be expected to remain volatile.
  • But with sentiment clearly becoming more supportive of the asset class after a multi-year-long underperformance, a return of investors' flows cannot be excluded.
  • Therefore, while continuing to focus on quality stocks with a sustainable growth profile in a diversified and balanced portfolio, we recently increased our cyclical exposure.

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