United States

Emerging markets hit hard

MONTHLY MARKET COMMENTARY  | 

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The movement in emerging markets broadly reflected slowdown concerns in global growth, leading to negative returns in emerging market equities and debt.

Let’s start this conversation with China, as the country dominated the headlines in July. In particular, the Shanghai markets fell decisively during the month. The Chinese government aimed to stem the fall by purchasing stocks to provide for some stability and decrease the downside, to little avail. This comes at an interesting time for China as the government is working to open up its financial system for greater investment. However, professional investors could likely see this recent government intervention as a cause of concern. At the same time, the Chinese government is attempting to grow its middle class by moving into a consumer-driven economy rather than relying as much on exports. It is important to note that there are two Chinese markets: 1) Shanghai markets, also known as China A-shares (which saw the precipitous decline in July) and 2) Hong Kong markets (where most U.S. investors receive their exposure). It is also important to note that Morgan Stanley Capital International (MSCI) announced in June it was not yet ready to include the China A-shares in its global benchmarks, citing greater transparency and the removal of other restrictions as sticking points. China still falls under the MSCI definition of an emerging market and comprises just less than 25 percent of the MSCI Emerging Markets Index (source: MSCI).

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