Emerging markets were negatively affected by talk of trade war and sanctions.

In Russia, President Putin was inaugurated into his new six-year term during the quarter. Announced reforms of increase in the pension age, long-term increase in spending on infrastructure, education, healthcare and increase the dividend payments from state-owned enterprises.  Challenges ahead is the significant increase in sanctions pressure from the US, which is driven by local political agenda and anti-Trump campaign.

In China, the currency (RMB) lost 5% vs the dollar during the quarter despite the Shanghai composite, is now just under 11 x (Bloomberg estimate) with earnings growth of 9%.  China-US trade tensions escalated being the major cause for the weakness seen and illustrated by the 3.7% correction the following day of sanctions.  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.

India is the fastest growing major economy in the world with a GDP of 7.7%.  The PMI index has now expanded 11 months in a row.  However, high crude prices continue, the 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 are net buyers vs foreigners who are net sellers.

The MENA region bucked the global market trend for the second quarter in a row, backed by higher oil prices. On a year-to-date basis, the MENA region has outperformed all other regions in the world, and that by a huge margin of c15-25%.  The much-awaited announcement from MSCI to upgrade Saudi to Emerging Market (EM) status came in June. It will be conducted over two phases in 2019 with a final weight estimated at 2.6% of MSCI Emerging Markets Index, which is estimated to lead to very sizeable inflows of $30 bn.

Local developments in the main African markets continue to be positive. Egypt removed its subsidy reduction and we saw fuel prices raised by an average 38% and electricity prices by 35%. The subsidy reduction should help the economy move towards its targeted 2%. South Africa joined the emerging market sell-off in June, with the rand falling 8% to return to levels last seen before the December.

In Mexico, after a strong start to the year, NAFTA jitters resulted in a market correction along with the
currency, the peso, given the uncertainty of the outcome of the July 1 presidential election

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