In the torpor of a hot, sunny summer, investors capitalised on some notable sector trends in a calm equity market. Despite uncertainties regarding the Italian bank bailout plan, European banking stocks featured among the strongest performers last month, with the DJ Stoxx Banks index gaining almost 13%. After years of regulatory pressure and populist onslaught by the law-makers, the constraints imposed on banks may finally be alleviated in the medium term. For example, as political leaders now want banks to support economic growth, financial institutions may be spared from Basel committee injunctions. Another strong trend during the summer saw small & mid-caps outperforming large caps due to the high quality of their reporting season and announced tax measures, particularly in France. Furthermore, as small & mid-caps are only marginally represented among ETFs, they fall outside of the scope of outflow from passive investment funds. Although macroeconomic trends in the eurozone recorded a slight downturn during August, guidance issued by company managers over the past week remains reassuring.
On the international front, emerging markets are turning more bullish. The impeachment of Dilma Rousseff was welcomed by the Brazilian Bovespa index. Latin and Central America are generally turning towards globalisation and more liberal policies. Only Venezuela is still resisting, although the latest demonstrations calling for a referendum to overthrow the Maduro government suggest a forthcoming change in power. Meanwhile, the first commercial flight took place between the US and Cuba.
In the US, investors are scrutinising employment data in an attempt to predict the date of the next rate hike decision by the Fed.
In Europe, equity markets unfortunately remain overly dependent on the political agenda and may be influenced by the customary rhetoric delivered during pre-electoral periods.
Igor de Maack, Fund manager and spokesperson at DNCA. This article was finalised in September 2nd, 2016.
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