Global emerging markets’ April gains

A stronger dollar and the consequent weakening Emerging Market currencies, a stable-to-slightly-weaker oil price, Greece and some profit-taking in China were some of the main reasons behind the market weakness. Again, China grabbed most of the attention, with the market continuing its uptrend initially, but with a short correction at the end of the month on some margin-tightening, IPO anticipation and a reduction in the bank exposure of one of the state holdings.

Due to the weaker currencies and commodity prices, Latin America lost more than 7% (Brazil -11%!), Poland -7%, Russia -6% and South Africa -8.4%, while Asia was able to limit its loss to less than 3% in USD, partly thanks to a recovery of April’s lagging markets India and Indonesia, the only two EM markets to end the month positive.

• While all sectors were in negative territory in May, the more cyclical sectors led the fall, contrary to April, when a value rally and an oil price recovery supported these sector stocks.
• Thanks partly to the fall-back of the cyclical sectors, recovery in our strategy’s overweight sectors (including technology and healthcare) and strong stock-specific performance contributions (from, inter alia, Xinyi Solar, Cosmax, Hermes Microvision and Eicher Motor), resulting in a strong outperformance of the exposure to countries like China, Korea and India, our nice outperformance in May more than offset the negative April excess return.
• 2015 continues to show a complex environment for emerging markets, as, besides external factors (USD, oil price, monetary policy in the developed countries, geopolitics), local politics and reform expectations will remain critical drivers of divergence in stock-market performance and earnings expectations.
• We are therefore remaining prudent in our overall allocations and focused on quality and sustainable growth in our stock selection, while continuing to pay attention to (rotational) risk through a well-diversified and balanced portfolio.