August Review
Risk markets continue to be supported by a resilient “Goldilocks” economy despite tariff concerns. Data coming out of the US over the month revealed inflation largely in line with expectations and better-than-expected GDP growth of 3.3%. The S&P 500 hit an all-time high in August and advanced 1.91% to notch its fourth consecutive positive month since the Liberation Day saga. To add, dovish remarks from Federal Reserve Chair Jerome Powell signalled that a long-awaited pivot to rate cuts is nearing. Still, cracks are appearing in the marble pillars of US exceptionalism in the form of policy uncertainties which are threatening the great reign of the greenback. The dollar fell over 2% in August. With President Trump’s aspersions against Powell, the attempted ousting of Fed Governor Lisa Cook and the search for a new Fed Chair in play, the institution’s independence stands caught in the crosshairs of political partisanship. The ten-year treasury yield ended the month 10bps tighter at 4.22%. Elsewhere, the Brent crude oil price settled the month at $68.12/bbl, down 6% as oil markets digested weaker demand from the world’s biggest economy alongside planned OPEC+ production increases in autumn.
As confidence in the US falters, investors are turning to the rising prospects of emerging markets (EM). EM equities had a strong month in August, returning 2.63% on the back of the US dollar’s year-long descent—the greenback fell over 9% year to date. EM local currency had a similar boost – up 2.15% for the month – driven by the FX component. In the EM hard currency fixed income space, sovereign markets climbed 1.6% and corporate markets were up 1.3% with spreads for both markets relatively flat over the month. In the sovereign space, higher yielding issuers outperformed while distressed names underperformed on spread terms. Venezuela and Bolivia outperformed heavily over the month. Technicals in distressed assets remain strong, driving cash into Venezuela. Bolivia’s dollar bonds rallied to the highest in over two years after an election which ended two decades of socialist rule, paving the way for free-market reforms. Elsewhere, Ukraine bonds benefitted from the Alaska meeting between Presidents Trump and Putin, though no substantial developments towards peace were made. Meanwhile, Argentina was an underperformer as a fresh corruption scandal embroiled the administration. In the corporate space, distressed debt outperformed as appetite remained strong. The transport, real estate and oil and gas sectors had the strongest performances for the month, while credits in the technology, media and telecommunications (TMT) industry underperformed.
Download this article for the full market review, market outlook, and latest performance.
Horizons Expanded: Harness emerging market opportunities across asset classes.