Emerging Markets

Emerging markets were the star performers for the quarter with US dollar weakness compounding gains. In dollar terms, the MSCI Emerging Market Index delivered 19.7% over the quarter, its strongest performance in over a decade which also saw it outperform the MSCI Developed World Index. An improvement to investor risk appetite due to successful vaccine news, and the rally in commodity prices contributed significantly to emerging market’s collective performance. As with developed markets, emerging markets have seen a resurgence of new Covid-19 cases, in part attributed to new strains of the virus. This has added additional pressure to the already overwhelmed health care and financial sectors of emerging markets. Market volatility remains elevated as participants search for signs of a recovery to pre-Covid-19 levels.

Emerging markets were the star performer for the quarter led by a surge in Chinese economic activity. The MSCI Emerging Market Index increased in value and outperformed the MSCI World Index. This was evidenced by the Chinese economy growing 3.2% y/y in Q2 of 2020, reversing a – 6.8% contraction in Q1 and beating market consensus of 2.5% growth amid relaxed lockdown measures. China’s economic recovery is however somewhat vulnerable to losing momentum as key trading partners struggle with resurgences of the deadly coronavirus and resort to fresh measures to control its spread. Tensions with the U.S. escalated during the quarter including new restrictions on Chinese  company Huawei and President Trump’s executive order preventing US companies from doing business with TikTok and WeChat. Chinese Q2 earnings results were also ahead of expectations particularly in the e-commerce sector.