September Market Summary: Emerging Markets win in a Growth & rates-led rally

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Global equity and bond markets rallied in September, supported by positive economic growth and a US Federal Reserve (Fed) rate cut that also brought an increased growth outlook.

Additionally, the US dollar and oil fell (usually a positive for world markets), China and the US sat to negotiate trade issues, and steps towards peace in Gaza were given.

Commodities rallied on such backdrop, helping emerging markets become one of the month’s winners (more below). Global growth equities outperformed value securities, overtaking them on a year-to-date (YTD) basis: 18.0% vs 17.4%, respectively.

European equities lagged, given the region’s lower growth relative to the US, and the absence, for now, of any additional rate cut hopes. The bond market welcomed the Fed cut, pushing the US 10yr Treasury yield down to 4.15%, from 4.26%. The month, however, ended with a US government shutdown, a reminder of the risks that global markets seem to be ignoring: substantial fiscal deficits, protracted inflation, drones paralysing airports (Copenhagen), and a photo shot of the presidents of China, India and Russia that illustrates a tense geopolitical order.

September optimism

After years of suffering from a rising US dollar and the effects of the 2020 pandemic that shut the world trade they are highly dependent on, Emerging market (EM) equities surged in September for a number of reasons, including: the continuation of this year’s US dollar drop cheapens their dollar-denominated debt and makes the products they export more affordable to non-USD countries; and the rally in commodities, such as gold and copper, which some of them export, boosts their coffers.

Chinese stocks led the rally, with the Hang Seng Index of Hong Kong stocks and Shanghai’s CSI 300 up 7.8% and 3.5% higher (in USD) in September, respectively. The surge was mostly led by AI optimism about China’s Tech leaders, as well as this year’s government fiscal and monetary support. China’s rally boosted the MSCI EM Index, a quarter of which is represented by Chinese companies, making the EM gauge stand out YTD, as seen in the chart below.