Positive but volatile environment

Led by China, a rebound in the oil price and a weakening dollar on a possible delay in the Fed's policy normalisation, Emerging market equities shone in April, posting a performance of more than 7% in USD terms on significant rotational movements.

China equities were boosted by new policies to encourage mainland investors into the Hong Kong market and bets that the government would do more to support the weak growth. Following the China rally, Korea finally saw some increased investors' interest.

However, in Latin America, Brazil surged strongly in April thanks mainly to the reduction in local risk premiums that followed some positive news flow on the fiscal adjustment, Petrobras, the oil-price recovery and the reduced US tightening risk.

Even Russia joined the party, with the RUB strengthening against the USD on better oil prices.

On the negative side, India saw profit-taking on earnings concerns and on whether PM Modi would be able to follow through on expected reforms. Also, long-standing outperformer Indonesia lost ground as investors worried about corporate earnings, a slowing economy and lowered confidence in President Widodo’s ability to deliver on reforms.

• Despite the positive contribution of several conviction stocks in China, Taiwan and elsewhere, we underperformed during this very volatile environment and lower quality- more cyclically rotational rally, due to the exceptional performances of lagging benchmark constituents and a degree of underperformance from formerly strong stocks in markets like India, Thailand or Indonesia.
• 2015 continues to show a complex environment for emerging markets as, besides external factors (the dollar, the oil price, monetary policy in the developed countries, geopolitics), local politics and reform expectations (not least of all in China) will remain critical drivers of divergence in stock-market performance and earnings expectations.
• We therefore remain prudent in our overall allocations and focus on quality and sustainable growth in our stock selection, while continuing to pay attention to (rotational) risk through a well-diversified and balanced portfolio.