Amid mounting concerns the global economic recovery is under pressure, while a spate of disappointing economic data from the US affected investor sentiment around the world.
The MSCI Emerging Markets index declined by 2.2% in US dollar terms during the month, while the BRIC nations (Brazil, Russia, India and China) fell by an aggregated 3%. Eastern European equity markets fell by 3.9%, while Latin America and Asia declined by 2.5% and 1.7% respectively.
China’s stockmarket ended the month largely unchanged after posting strong gains during July. The country also overtook Japan during the second quarter of 2010 to become the world’s second-largest economy, reflecting its growing power and influence in the global economic arena.
Nevertheless, China’s rapid economic growth is starting to decelerate following measures to avert the risk of overheating, spurring speculation the government might decide to reduce curbs on lending. Export orders also began to show signs of slowing, suggesting international demand for the country’s products might be cooling. Meanwhile, China’s inflation rate reached its highest level for 21 months during July, triggering hopes inflation might have peaked. Prices were stoked by higher food costs that were inflated by the effects of flooding.
India’s economy registered its strongest growth in more than two years during the second quarter, expanding by 8.8%, year on year. Despite an uneven August, the country’s Sensex index ended the month roughly where it began. During the month, investors in India were cheered by the news lower food prices were helping to cool inflationary pressures, and by hopes of strong harvests that would provide support for economic growth. However, sentiment was held in check by worries sustained strength in economic growth might spur India’s central bank to continue raising interest rates in order to keep inflation under control.
The Russian equity market declined by 2.2% during the month and the country’s central bank maintained interest rates at 7.75%. Inflation is running high in Russia, fuelling concerns monetary policy alone will not be sufficient to control inflationary pressures in a country that has been badly affected by drought.
Brazil’s equity market declined by 3.5% during August, pulled down by concerns over the outlook for the global economic recovery and, in turn, by a fall in commodity prices. Meanwhile, the country’s rate of inflation continued to slow after interest rates were raised to 10.75% ahead of presidential elections in October.
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