Performance was slightly disappointing following the strong gains the market experienced in July. The fund was down 2.1% for the month of August, outperforming the MSCI World Index which was down 4.3% for the month, bringing the year-to-date number (until 31 Aug. 2022) of the index to -17.5%. In summary, emerging markets outperformed developed markets with MSCI Emerging Market Index up 0.4% for the month.
The highly anticipated Jackson Hole Symposium happened end of August with the theme being “Reassessing Constraints on the Economy and Policy”. This annual event is an important platform as the market looks for any signal from the Fed about the course of monetary policy as they generally have more meat than the general policy speech. The market did not react positively to the Fed chairperson’s, Jerome Powell, keynote speech after he made it clear that the Fed’s main priority is to fight inflation and warned of ‘some pain’ to the U.S. economy. Powell stated that reducing inflation may not be quick or simple, and as result of we should expect to see an increase in interest rates, an increase in the U.S. unemployment numbers and a weaker economy as they fight to tame inflation. This is one of the most aggressive campaigns to increase interest rates since 1981; and other economies globally- both developed and developing- have also been increasing interest rates as inflation surges.
In other parts of the world, CSI 300 Index decline by approximately 2% during the month due to tougher macroeconomic conditions. While their central bank eased monetary policy by cutting the one-year medium-term lending facility rate by 10bps to 2.75%. In Europe, recession risks remain high as energy prices remained elevated, which is pushing inflation numbers even higher. As a result, MSCI Europe ex-UK Index declined by almost 5% for the month of August. The Bank of England now expects recession to start in the fourth quarter as inflation numbers also reached its highest level in 40-years at 10.1% in July.
Earnings season is almost done with the Energy and Industrial sectors seeing growth, while Financials and Communications sectors saw declines. The fear gauge, the VIX index aka CBOE Volatility Index, increased after Powell’s speech at Jackson Hole and closed the month at a high of 26. In terms of currency, the Dollar strengthened by c.3% while the Rand weakened by 2.9%, the Pound weakened by 4.5%, and the Euro weakened by 1.6%. In terms of precious metals, palladium was down 2%, gold down 3.1%, platinum down 5.6%, and silver down 11.6%.
In terms of stock performance, EPAM Systems was the best stock performer in the fund followed by Pan Pacific International and Carlsberg. While the worst performers were Straumann Holding, Arena Reit, and Intuitive Surgical which were mainly impacted by the volatility in the market. The software engineering company, EPAM System reported its second quarter 2022 results and beat market expectations. Revenue increased by 36% to $1.2bn, with acquisitions contributing 6% towards this growth. They’ve seen growth across all geographies as well as various industries. Their results highlight the resilience of their business model following disruptions from the Russia-Ukraine war as their largest delivery centers were in Ukraine, Russia, and Belarus. For the third quarter, management expects revenue to grow by at least 26% with acquisitions contributing 4% towards this.
Overall, August was a tough month for investors following the July rally. Moreso, after Powell’s hawkish commentary. There’s still concerns about growth outlook which could negatively impact returns in the equity and fixed income space. The good news with earnings season is that companies overall haven’t done badly with S&P 500 earnings expected to grow in the low to mid-single digit. High quality companies with strong balance sheets and pricing power will continue to perform better than the overall market.