In line with recent months, emerging markets outperformed in September. Besides a rising oil price, anticipating a possible OPEC production freeze, developed central banks were the main drivers behind market sentiment, with the Fed finally refraining from a September rate hike despite an earlier tightening indication.

Cyclicals again outperformed defensives, with technology and energy the best-performing sectors.

In Asia, Taiwan (technology) and Hong Kong/China led performance, the latter partly due to anticipation of strong southbound flows to HK after the HK-Shenzhen Connect also being opened to insurance companies. Samsung Electronics, having to deal with a recall of their new Galaxy Note phone, held back Korea. Apart from Indonesia, which cut its rates, most ASEAN markets were weak, with the Philippines market suffering political uncertainty from the president’s ‘a-typical’ comments. 

The EMEA region was strong, led by a strong South Africa (currency) and Russia, and helped by the oil price and a rate cut. Turkey, however, was weak, after a downgrade by Moody's.

LATAM, driven especially by weakness in Mexico due to a rate hike and some "Trump"-fever, lagged in September. 

Driven mainly by a stock selection spread over sectors and countries, we slightly outperformed in September.

  • Argentina utility Pampa and financial-sector exposure in South Africa led the positive contribution while strong profit-taking in Chinese technology and in environmental and alternative energy stocks was the main adverse performance driver.
  • The global economy, China, the Fed, the US election, the USD and the RMB will remain some of the main market drivers behind emerging market performance.
  • But the recent global macro stabilisation, as well as positive (relative) earnings revisions and valuations, continue to support sentiment towards emerging markets, with positive fund flows and outperformance after a multi-year-long period of negative relative returns.
  • While remaining constructive, some risk factors like the Fed rate hike cycle and US election could keep investors at bay in the short term.
  • Therefore, while maintaining a focus on quality stocks with a sustainable growth profile, we continue to maintain a well-diversified and balanced portfolio.

* given the geopolitical risks

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