Strong rebound of Global emerging markets equities last month

The emerging markets rebounded strongly in early October to end the month 7% higher, after falling five months in a row. Expectations of a postponed Fed-rate hike, a more dovish ECB and increasing confidence that China would be able to avoid a hard landing were the main drivers.

All sectors and regions gained, together with most currencies, with Asia taking the lead. China’s local and HK-listed stocks rallied, supported by several fiscal and monetary stimulus measures, with a cut in interest rates and the reserve requirements for the banks, to support the weak Chinese economy and in anticipation of the 5-year plan at the end of October.

Korea, surprised by an impressive share buy-back and dividend plan at Samsung Electronics, as well as Indonesia, driven by stimulus measures, were the main winners, while earlier outperformers like India and Philippines lagged.

The other regions, too, did well, although to a lesser extent. While Russia and South Africa were helped by the commodity recovery, Turkey gained most, despite a bomb explosion in Ankara, supported by expectations of a more stable political situation after the elections, contrary to Poland, where elections brought only more uncertainty.

Despite a deteriorating economic and political situation, Brazil gained 5%, only slightly less than Mexico, by far the better Latam market this year.

• Mainly due to the brisk early-October "value" rally, we slightly lost against our benchmark, despite a strong recovery towards month's end.
• Stock relative performance mostly contributed, with a strong contribution from companies like Alibaba, Korea Aerospace, Xinyi Solar and Inbody – which almost offset the negative impact from profit-taking in stocks like Zhuzhou CSR Times and Hanssem – and the rally of Samsung Electronics pref shares.
• With continued uncertainty over China, the Fed and the overall global economy, we can expect market volatility to continue in the months to come.
• The complex environment of external factors and local political and policy uncertainty will act as the main drivers of divergence in Emerging Market performance. Counter-trend rallies from the current oversold state of several markets 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.