Overall emerging markets weakness, coming from the trade war, sanctions from the US negatively impacted the emerging markets and the Fund during the quarter.

In Russia, President Putin was inaugurated into his new six-year term during the quarter. Retail trade numbers increased 3% in June, new car sales is up 18% this year and credit expansion for individuals increased 9% for the year. Current account surplus came in at USD 53 billion for the first half vs 23 bn same period 2017. Despite economic sanctions, we expect to see economic growth between 1.5% and 2% this year with inflation around 2.5%.  Announced reforms will address an increase in the pension age, long-term increase in spending on infrastructure, education and healthcare challenges ahead is the significant increase in sanctions pressure from the US, which is driven by local political agenda and anti-Trump campaign.

In June, the Chinese currency (RMB) depreciated by almost 4% vs the US dollar. Defensive names lost alongside the market. The current Bloomberg estimated P/E for the index, the Shanghai composite, is now just under 11 while the estimated earnings growth for the same index is over 9%.  China-US trade tensions keep escalating. Monthly economic data points have missed market estimates compounding overall uncertainty. Looking ahead: China’s economy is likely to grow at a healthy pace supported by record consumption from the1.4 billion population, supported by a healthy national debt to GDP ratio and a stable political environment.  The inclusion of China A-shares in the MSCI Emerging Market Index began on 1 June and we should expect to see increased flows into the market in the future.

With a GDP growth of 7.7%, India is the fastest growing major economy in the world.  The important purchasing managers index (PMI) has now expanded 11 months in a row.  However, high crude prices continue, spillover effect from trade talks in China is damaging from a physiological point of view although India is not really affected given its minimal trade with the US.  Most of the market cap in the index is trading at their 52 weeks low and the currency is down almost 7% against the dollar.  Domestic Indian mutual funds have subscribed for $10 billion this year as they witness the strong domestic economy, improving corporate earnings and balance sheets.  This in contrast to foreigners who have taken out $1 billion of their Indian investments this year.

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