Third Quarter 2015 – “Revised Expectations”

Third Quarter 2015 – “Revised Expectations”

During the third quarter, volatility returned and risk assets around the globe declined dramatically as investors’ appetite for risk evaporated. The S&P 500 held up relatively well, declining by 6.4%, while the MSCI EAFE lost 10.2%; emerging markets fared the worst, with the MSCI EM Index declining by 17.8%. Investors’ uneasiness was bolstered by uncertainties surrounding the amount and timing of interest-rate hikes in the US and the prospect of slower growth in China and the emerging markets. Global growth, while positive, was revised downward by the IMF, as they expect a slowdown in the larger emerging markets, declining commodities prices, and reduced fund flows to hold back growth. Over the last 20 years, China has grown from just 2% of the global GDP to 13.4%, according to data from the INF. Therefore, when China experiences economic setbacks such as those of this year, the results are felt globally. This past quarter there has been a dramatic shift of fund flows out of the emerging markets exceeding $40 billion, the highest level since the credit crisis, according to the Institute of International Finance…