2 to 8 September: As global political tensions ease, markets have a chance to melt up

The market has rebounded last week (the MSCI EM index was up 2.4% in USD on the week) on some positive news from easing US-China trade tensions to some development in Hong Kong’s situation as well as some better-than-expected US labour market data. In addition, expectations for looser monetary policy stances by the Federal Reserve, the European Central Bank, the People’s Bank of China and several other emerging market central banks’ contributed to the sigh of relief. In our view, such a market move proved that stock market performance in the last couple of months decoupled from macroeconomic fundamentals and were predominantly driven by political developments. We sustain our opinion that the global economy is highly unlikely to slip into a recession anytime soon (as opposed to the implied market pricing), especially that both fiscal and monetary authorities closely monitor economic developments and stand ready to provide a cushion. Once political tensions persistently ease, investor sentiment will improve and a sustained upswing in stock markets should prevail.

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