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The hostile speech by Mike Pence, the Vice President of the US, in early October was a big blow to China stock markets. The MSCI China Index and CSI 300 Index tumbled -11.5% and -8.3% respectively during the month. 

The Strategic Europe Value Fund declined -4.24% in October, outperforming its index by 1.07 percentage points. The best performing sectors in terms of alpha were Materials and Industrials, due to strong stock selection. The Fund’s overweight to the Consumer Staples and Health Care sectors and its slightly higher cash position also helped.

In October, the market declined due to rising interest rates in the US and increased fears about a future deterioration of the US and global economy. The market fell after the US market plummeted following the release of weak housing statistics amid a worrying quarterly earnings season.

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As stated in the previous commentary, the Investment Adviser is still positive regarding equities’ short term potential to regain ground, but is cognizant that this scenario requires some positive developments on the international front and the economic backdrop to remain healthy.

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October once again lived up to its reputation for being a complicated month in the stock market, with the Fund loosing -7.39%* during the month. More globally, the S&P declined on 16 out of 23 days, leading to a 6.9% loss in the US, shedding nearly $5Tr worth of collective market cap.

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In October, the main financial markets were driven by risk aversion. As IMF president Ms Lagarde put it: “risks are starting to materialize”. During the month there were many sources of concern such as global growth, the ongoing trade war, the economic slowdown in China, the fall of equity markets, the collapse of emerging market currencies, Italy, Brexit, elections in Brazil and Germany, Iran and the murder of Mr. Khashoggi.

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 At the beginning of October, the Japanese market gained on the back of a depreciating yen, with the Nikkei 225 index reaching 24,270, the highest level in almost 27 years since the Japanese bubble era. 

Japan on the road to growth
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For three decades, investors have moved assets from Japan, associated with an aging population, to emerging Asian markets, which are subject to a booming demographic. To counter the effects of unfavourable demographics on the labour market and thus the country's growth,

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The Strategic Europe Value Fund returned 0.58% over the month, slightly outperforming its benchmark (+0.53%). Stock selection was strong during September, particularly in the Information Technology and Consumer Staples sectors.

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During September the Fund reported a loss of -2.94% on an absolute basis. Spie was the largest monthly contributor to the Fund’s performance, followed by Albioma and Befesa.

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After a moderate rally in August, the Japanese market declined sharply at the beginning of September, overall still posting a gain of 5.6% at the end of the month. 

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In September, the trade war between the US and China, emerging markets (Turkey in particular), political tensions around the world (Iran and the impact on oil prices) and - to a lesser extent - Brexit continued to be a source of concern. This said, the Italian budget and the FOMC were the most awaited key events of the month.

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In September, market sentiment remained fragile as investors saw no end to the US-China trade tensions. The MSCI China Index lost 1.4% during the month, marking the fourth consecutive month of decline. Following repeated statements from the Chinese government that the country would not weaponise its currency to counter US sanctions, the Renminbi edged down slightly to 6.8688

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At the beginning of September, the Japanese market continued to decline, decreasing for 7 consecutive days. Natural disasters, such as a typhoon and earthquake hit Japan, detrimentally impacting the economy, which is already being negatively affected by concerns over global trade frictions. 

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Data reports for the period were solid, showing no particular signs of an economic slowdown. As expected, the Federal Open Market Committee increased the federal funds rate by 25 basis points (to 2-2.25%) after its September meeting. 

Asian Equities – Opportunity for Growth in China and Japan
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Our Asia-focused investment experts provide their outlook for the Chinese and Japanese equity markets and the opportunities that lie within.

Disparities in European equity stock valuations lead to a great opportunity, Bertrand Faure

Bertrand Faure comments on how European equity market movements have created significant disparities in stock valuations leading to a great opportunity for fundamental investors.

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In August, China stocks remained under pressure as the ongoing Sino-US trade frictions, the contagion of the emerging market crisis and domestic macro concerns kept haunting the market, triggering the MSCI China Index and CSI 300 Index to lose 3.8% and 5.2% respectively.

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In August, the trade war between the US and China continued to escalate. At the same time, Turkey triggered Emerging Markets fears, with Italy remaining the main source of concern in the Eurozone.

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