Global Markets Shift Gears in Q3 2024
The third quarter of 2024 saw a significant turnaround in global markets, with the MSCI ACWI ex-US index posting a strong 8.06% return. Emerging Markets led the charge, driven largely by China’s resurgence, while Europe and Japan lagged behind.
Monetary Policy Pivot
This year has been marked by a dramatic shift in global monetary policy, with central banks around the world adjusting their interest rates to combat inflation. The U.S. Federal Reserve’s decision to cut interest rates for the first time this business cycle had a ripple effect on global capital markets, causing the U.S. dollar to fall and foreign currencies to rise.
Emerging Markets Spring to Life
As predicted, Emerging Markets have begun to benefit from the Fed’s pivot, with capital flows increasing and currencies strengthening. The Madison International Stock Fund (Class Y) underperformed the MSCI ACWI ex-US index in Q3-2024, but Emerging Markets contributed positively to relative performance due to stock selection and allocation effects.
Regional Performance
While Europe and Japan led the underperformance, Emerging Markets, Consumer Discretionary, Materials, and Communication Services were the top-performing sectors. Cash had a slightly negative impact due to positive index performance.
Geopolitical Uncertainty Looms
Despite the positive trends, geopolitical events remain a wild card. If global conflicts intensify, a ‘flight to safety’ flow of funds could counter-support the USD. The upcoming elections in Japan and the U.S. also pose risks, as uncertainty can cause market volatility to spike.
Diversification is Key
In such uncertain times, diversification is crucial. International Equities offer exposure to uncorrelated stock markets, and Emerging Markets, particularly China, represent a unique opportunity. By maintaining diversification, focusing on the long-term horizon, and sticking to quality companies, investors can navigate the complexities of global markets.
Disclosure
Please note that past performance is no guarantee of future results, and indices are unmanaged. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Consider the investment objectives, risks, and charges and expenses of Madison Funds carefully before investing.
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