Improved sentiment in a context of brutal market rotation

EMERGING MARKETS

Emerging market equities were flat in February after a sluggish start to the year. Sentiment improved somehow as hopes of more economic stimulus from Beijing resurfaced and policymaker bias across the globe sounded for more monetary easing.

Besides that, talks about OPEC freezing oil production sent oil prices upwards.

LatAm was the best-performing region, with commodity-exporting countries Brazil and Peru gaining more than 5% in USD terms while Asia was under pressure after foreign institutional investors massively sold India and growth continued to weaken in China.

On the other hand, investors redirected the cash towards South-East Asia, with Thailand and Indonesia posting positive performances as investors remained underexposed there.

At sector level, there was massive rotation, with oversold cyclical materials, energy and real estate shining at the expense of quality stocks and defensive sectors like pharma and consumer discretionary.

• February was a challenging month for our strategies. Brutal sector and style rotation impacted our excess return.
• In fact, money was lost due to our underweight in Materials and Energy as well as to the massive profit-taking on some high-quality names in India.
• In order to limit the risk during brisk rallies going forward, positions were built in oversold blue chip commodity-oriented stocks such as Petrobras, Sasol and Vale.        
• With the ongoing uncertainty over China, the Fed, the 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 Emerging Markets 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.