Positive return for EM equities,

Emerging equities posted a positive return in February, thanks to a combination of factors.

The rebound in the oil price, improving relations between Russia and the European leaders, and the deal signed to extend the terms of Greece’s bailout by four months improved investor sentiment.

In Asia, Chinese equities rose, as both central and local governments indicated their intention to further loosen monetary policy. The Indian market continued its positive rally into the next budget, which was released on the last day of February.

In Latin America, the commodity-price rebound helped the equity market. At country level, improving Mexican economic figures supported the general sentiment and encouraged investors to shift exposure to domestic cyclicals as the recovery has been flowing into corporate earnings and guidances.

In emerging Europe, Russia skyrocketed, posting an absolute performance of 22% in USD terms as a new cease-fire was reached with Ukraine, while Turkey lost ground due mainly to investor nerves over the twin headwinds of rising US 10Y yields and the oil price rebound.

• We lost some ground last month due to sector rotation, especially in cyclical sectors like Energy and Materials, while investors took profit on expensive consumer names.
• Some disappointing stock-related performances did not help, either, in countries like India and Mexico.
• However, we managed to limit the loss thanks to some of our high-conviction stocks, such as Luxsoft, Lenovo and Cosmax.
• In 2015, as in 2014 – besides external factors like the dollar – the oil price, monetary policy in the developed countries, geopolitics, local politics and reform expectations will remain critical drivers of divergence in stock-market performance and earnings expectations.
• We therefore remain prudent in our overall allocations, focused on quality and sustainable growth in our stock selection, while continuing to pay attention to risk through a well-diversified portfolio.