August Recap – Weak, In Line With History

- New GEMs Product — "With this report, we introduce our new GEMs Monthly Recap product. This will provide a review of market performance, macro data and important events over the past month for the asset class overall, Asia, Latin America, EMEA and the largest seven countries within the GEMs index. By design, there is little forward-looking material in this report."
- Big Outperformance in Down Market — "Emerging markets outperformed in August, with GEMs down 2.2% vs AC World -3.7%. Asia led with a decline of only 1.7%, followed by Latin America (-2.5%), while EMEA lagged (-3.2%). The top three performing markets were Colombia, Thailand, and Chile; laggards were Morocco, Mexico and Czech Rep. The ‘big seven’ emerging markets all declined in August."
- Defensive over Cyclicals — "In August, Health Care and Consumer Staples were the main outperformers, rising by 1% and 0.9%, respectively. In contrast, Technology and Financials declined the most, by 5.3% and 3.1%. Energy stocks fell by 2.9%, on a decline in oil prices of 2.3% to $75/bbl, and Materials fell by 0.9%."
- Historically Low Yields — "Emerging market bond prices continued to rise last month; the EMBI+ blended yield fell to an historical low of 5.40% on August 23 but has since rebounded modestly to end the month at 5.61%. Our FX proxy shows an average fall of 0.5% of EM currencies (MSCI-weighted) versus the dollar."
- Strategy — "Our view remains that the MSCI GEMs index will stay within its current trading range over the rest of Q3, but will break out to a new high for the cycle in Q4, when the seasonals are favorable and current ‘double-dip’ fears may began to subside. We look to add beta into Q4; for now, we remain Overweight in defensive Asia and Underweight high-beta Latin America; we are Neutral in EMEA."


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