Research & Insights

Our investment decisions flow from incisive perspectives.

August 2015

Kai W. Hong, CFA
Managing Director & Chief Investment Strategist

The main event for the month was the surprise devaluation of the Chinese Yuan which catalyzed a dramatic decline in global equity markets. While the magnitude of the devaluation itself was modest (~5%), the impacts were substantial as demonstrated by the greater than 10% decline in equity markets in the six trading days from the 18th to the 25th. The devaluation served to highlight economic weakness in China and contributed to market fears regarding the sustainability of a market rally in its seventh year. All of this volatility further complicated the picture surrounding the timing of the Fed’s lift-off in interest rates, making the outcome from September’s meeting particularly hard to call. While Fed officials appear to want to begin moving away from the zero-bound, many outside groups (notably the IMF and the World Bank) have come out strongly against action at this time. Once the predominant macro story, the Greek debt crisis moved to the background as the Greek government and its lenders reached an agreement in principle for a third bailout. US GDP for the second quarter was also revised up to 3.7% from the previous estimate of 2.3% growth.

Market declines during the month were broad-based and fairly severe as volatility surged and correlations increased. The broad market Russell 3000 Index finished the month at -6.0%, a data point in the bottom decile of monthly returns for the last 25 years. US small cap stocks were similarly down as the Russell 2000 Index returned -6.3%. Performance was even worse in most non-US markets with the developed market MSCI World ex USA returning -7.3% and the developing market MSCI Emerging Markets Index returning -9.0%.