Global Markets Rebound in Q3 as Central Banks Ease
The third quarter saw a welcome rebound in global markets, thanks to rate cuts and financial easing from central banks around the world. This shift in monetary policy sparked a rotation into value sectors such as real estate, utilities, and communication services. Chinese stocks, in particular, surged late in the quarter, following the announcement of a broad stimulus package aimed at revitalizing the world’s second-largest economy.
Value Outperforms Growth
In this quarter, value outperformed growth, with the MSCI EAFE Value Index returning 8.89% versus the 7.26% return of the MSCI EAFE Index and the 5.68% of the MSCI EAFE Growth Index. This marks a significant shift in investor sentiment, as value stocks have been overlooked in recent years.
Central Banks Take Action
The Bank of Japan’s surprise rate hike in August caught investors off guard, leading to a spike in market volatility. However, the European Central Bank and Bank of England also cut interest rates during the quarter, taking a more measured approach considering the slow growth rates in their respective economies.
Regional Performance
Japan was the worst-performing region in the benchmark, while the U.S. and China saw significant gains. The U.K. economy continues to hold up more strongly than those across the Channel, despite the uncertainty surrounding the new government’s policies.
Sector Performance
The benchmark MSCI EAFE Index showed positive returns across nine of its 11 sectors, with only energy and information technology declining. Value sectors such as real estate, utilities, and communication services led the way, while cyclical sectors including materials, industrials, and consumer discretionary also performed well.
Portfolio Performance
The ClearBridge International Value Strategy outperformed its benchmark in the third quarter, driven by strong performance from holdings in the consumer discretionary and financials sectors. Stock selection in Japan was also a positive contributor to performance, driven by strong year-to-date contributors Hitachi and Fujitsu.
Outlook
While there are still event risks on the horizon, including the U.S. election and geopolitical tensions, we remain optimistic about the prospects for a continued rotation to value and cyclical segments of the market. The improving economic and financial conditions, combined with the potential for Chinese policy support, create a supportive backdrop for investors.
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