Emerging markets outperform in August

Emerging Markets
Emerging Markets Briefing –

Emerging equity markets generally performed better than their developed counterparts during August, led by a strong contribution from China. The Shanghai Composite Index rose by 3.6%. During the month, a plan to connect the Hong Kong and Shenzhen stock exchanges was finally approved in principle.

The International Monetary Fund (IMF) expects China’s economy to expand by 6.6% this year. In comparison, China’s National People’s Congress issued an official growth forecast for 6.5% to 7% earlier this year. However, the IMF suggests that China’s strategy of setting annual growth targets, instead of projections, could create an “undesirable focus on short-term, low-quality stimulus measures”. By 2021, the IMF expects China’s economic growth to moderate to 5.8%.

Elsewhere, investors were disappointed by soft trade data for July. China’s exports fell at an annualised rate of 4.4% in US dollar terms during the month, while imports fell by 12.5%. Data from the industrial and retail sectors also proved weak: retail sales rose at an annualised rate of 10.2% in July, compared with growth of 10.6% in June; meanwhile, industrial output posted annualised growth of 6%.

India’s economic growth lost momentum during the second quarter of 2016. The country’s economy grew at an annualised rate of 7.1% during the period, compared with a rate of 7.9% during the first quarter. Growth was dampened by subdued growth in the agriculture, forestry & fishing sector and by negative growth in the mining sector.

The next Governor of India’s central bank was announced during August. Urjit Patel is a current Deputy Governor of the Reserve Bank of India (RBI) and will replace incumbent Governor Raghuram Rajan in September. India’s parliament passed new tax reforms designed to simplify the current complicated system. Over August as a whole, the benchmark CNX Nifty Index rose by 1.7%.

Brazil’s economic decline appeared to have slowed during the second quarter. The country’s economy shrank at an annualised rate of 3.8% during the period, compared with a first-quarter contraction of 5.4% . The rate of investment rose into positive territory, rising by 0.4% quarter on quarter. However, Brazil’s rate of unemployment climbed during the three months to July, rising from 11.3% in June to 11.6%. At the end of August, Brazil’s President Dilma Rousseff – who was suspended in May – was formally impeached by the country’s Senate. The Bovespa Index rose by 1% during August.