Return to a downward trend for Global emerging market equities

After a short rally in October, emerging markets returned to their downward trend, losing more than 4%. The rising probability of a Fed rate hike in December, and clear policy divergence with the other main central banks, pushed the USD up, with a strong impact on emerging market sentiment (currencies as well as commodity prices).

Oil prices fell around 10% on very high inventories and a continuously weak Chinese economy. The latter, and some investigations at certain Chinese brokerage firms, hit Chinese stocks, despite the news that the CNY will enter the IMF's SDR basket in 2016. Also, apart from Malaysia and Indonesia, most Asian markets lost more than 3% (partly on currency weakness), but with India suffering most, because of premier Modi's party losing an important state (Bihar) election and the risks facing some slowing reform momentum.

Other regions, too, were hit. The falling oil prices impacted Middle Eastern markets, while a deteriorating macro situation hit the South African rand and market. Turkish equities struggled, on economic and geo-political grounds, not least following the downing of a Russian fighter jet.

Latin American markets, meanwhile, again suffered on lower commodity prices and, especially in Brazil, on a continuously deteriorating macro as well as political environment. This, along with the recent jailing of a bank CEO, heaped even more troubles on the head of president Dilma Rousseff.

• We outperformed our benchmark in November, with stock selection the main reason for the positive excess return.
• The positive contribution of software services (My E.G. Services, Luxoft), Health Care (Grape King, NMC Health) and Chinese ADRs (TAL Educ., Baidu) was partly countered by some weakness in stocks like Vipshop and Commercial Bank of Egypt.
• We have made only selected moves in our regional allocation.
• We remain fairly positive on Korea, mainly on the Health Care, Biotech and cosmetics segments.
• India also remains one of our favourite countries as we think the recent political reforms will be rewarding in the long run.
• We have reduced our grade on Turkey following the recent tensions with Russia.
• The inclusions of ADR stocks in the MSCI universe gave us the opportunity to add new stocks to our portfolios.
• With on-going uncertainty over China, the Fed, global economy and geo-politics, 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 EM 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.