How did equity markets perform in 3Q22?
Equity markets generally extended their year-to-date (YTD) declines in 3Q22 after optimism over a potential Fed pivot started fading in mid-August. Fed officials have reiterated their intention to continue hiking rates in light of persistently high inflation levels and a red-hot labour market within the US. With global central banks – led by the Fed – facing a similar pressure to hike rates in an attempt to rein in inflation, it appears inevitable that we are headed for a growth slowdown in the coming quarters.
In 3Q22, FSM Indices – All Equity declined by -7.81% amidst weakening global risk sentiment. FSM Indices – Emerging Markets Equity saw a sharper decline (-11.53%) compared to FSM Indices – Global Equity (-3.57%) led by renewed weakness in Chinese equities, though a strong Indian equity performance likely helped to buffer these losses.
One of the worst performers was FSM Indices – China Equity (-20.06%), which fell on the back of renewed investor concerns over China’s fragile property sector and the possibility of renewed lockdowns across the country. Nonetheless, while we are cognizant of the headwinds for Chinese equities, we remain positive about them as we believe that many of these negatives have already been priced in.
Related article: China’s bad news just keeps getting worse, but the risk is worth taking
FSM Indices – Technology Equity also slumped by -12.72%. Technology stocks were hit hard by a downgrade in earnings forecasts due to the slowing macro backdrop, as well as a valuation contraction amidst the rising rates environment, especially since tech stocks tend to be longer-duration in nature (meaning their expected future cash flows will be discounted by a larger amount). We believe it is not yet time to get back into Technology stocks as a whole, though some segments – big-tech and cloud computing – may offer more resiliency within the broader sector.
Related article: Not time yet – maintain 2.5 Stars “Neutral” rating for the Digital Economy
FSM Indices – India Equity (+8.86%) was the best performing FSM Index by a large margin, as it rebounded from a weak performance in 2Q22 (-10.10%), helped by relatively resilient macro data and earnings results. However, despite this strong quarterly performance, we continue to remain cautious on Indian equities due to stretched valuations both on an absolute and relative basis, as well as the potential for further earnings downgrades due to potentially sticky macro headwinds.
Related article: India: Downgrading one of the best-performing equity markets of 2021
Table 1: Performance of various FSM Indices for Equity Funds
| FSMI Equity | 3Q22 Return | YTD Return |
| FSM Indices - India Equity | 8.86% | -7.66% |
| FSM Indices - Financials Equity | 0.81% | -27.76% |
| FSM Indices - US Equity | 0.07% | -19.32% |
| FSM Indices - Healthcare Equity | -1.32% | -14.78% |
| FSM Indices - US Small Caps Equity | -2.10% | -17.31% |
| FSM Indices - Global Equity | -3.57% | -18.57% |
| FSM Indices - Singapore Equity | -4.05% | -11.32% |
| FSM Indices - Japan Equity | -4.76% | -23.15% |
| FSM Indices - All Equity | -7.81% | -22.76% |
| FSM Indices - Global Property Equity | -9.81% | -29.55% |
| FSM Indices - Europe Equity | -10.54% | -29.85% |
| FSM Indices - Asia Ex Japan Equity | -11.18% | -24.88% |
| FSM Indices - Emerging Markets Equity | -11.53% | -27.20% |
| FSM Indices - Asia Property Equity | -12.03% | -20.77% |
| FSM Indices - Technology Equity | -12.72% | -42.39% |
| FSM Indices - China Equity | -20.06% | -31.08% |
Note: FSM indices are a simple average of all unique fund strategies within the category listed on our platform. Investors can use it to compare a single fund against its peer average, or its actively managed products on our platform against the market index.
Top performing equity funds of 3Q22
Our sole fund focusing on Turkish equities – HGIF – Turkey Equity Fund Cl AD SGD – was our top-performing fund for 3Q22. Turkish equities have skyrocketed this quarter (MSCI Turkey Index: +20% in SGD terms), despite the precarious situation of its economy with CPI inflation at +83.45% YoY (Sep) and unemployment at 10.6% (Jul). This has been mainly due to its central bank CBRT’s unorthodox monetary policy of cutting rates to control inflation (by 600bps since Aug 2021), which has not only failed to rein in inflation (making cash less attractive), but also pushed Turkish yields lower (making bonds less attractive). As such, domestic investors have opted to invest in equities to protect against inflation, leading to a sharp run-up in equity prices and contributing to the strong performance of this fund.
Indian equity funds accounted for four of our top 10 equity funds in 3Q22, helped by the broader market run-up (highlighted in the previous section). Within this segment, the top-performing Indian equity fund was the UTI India Dynamic Equity Fund. This has been our Recommended Fund since 2021 (albeit in USD instead of EUR), due to its strong and consistent outperformance over its benchmark and peers, and remains our top pick within this Indian equity fund segment.
Brazilian equity funds accounted for three of the top 10 equity funds in 3Q22, helped by the strong performance observed in Brazilian equities (Bovespa Index: +11% in SGD terms). Brazilian markets were supported by two main factors: (i) positive macro data (higher-than-expected GDP and lower-than-expected inflation); and (ii) opinion polls signalling a narrowing of Lula’s lead over Bolsonaro in the October Presidential Election (as Bolsonaro is seen to be relatively pro-reform and pro-privatisation).
Latin America (LatAm) equity funds accounted for another two of the top 10 equity funds in 3Q22, which is unsurprising given that these two funds have a large allocation (60%) to Brazilian equities, similar to common benchmarks (e.g. MSCI EM LatAm Index). Interestingly, the JPMorgan Funds – Brazil Equity A (acc) SGD saw a much higher return compared to the JPMorgan Funds – Latin America A (acc) USD despite having the same portfolio managers, and this may have been caused by a weak performance by Mexican equities (MSCI Mexico Index: -2% in SGD terms) which has a 26% allocation in the latter fund.
Table 2: Top performing equity funds of 3Q22
| Fund name | 3Q 2022 | YTD | Segment |
| HGIF - Turkey Equity Fund CL AD SGD | 28.53 | 52.16 | Turkey Equity |
| JPMorgan Funds - Brazil Equity A (acc) SGD | 15.84 | 11.94 | Brazil Equity |
| HGIF - Brazil Equity AD SGD | 12.64 | 11.32 | Brazil Equity |
| UTI India Dynamic Equity EUR | 11.88 | -14.46 | India Equity |
| BNP Paribas Brazil Equity USD | 11.54 | 12.72 | Brazil Equity |
| JPMorgan Funds - Latin America Equity A (acc) USD | 11.27 | 6.08 | Latin America Equity |
| India Acorn ICAV - Ashoka India Opportunities F EUR | 11.25 | -13.03 | India Equity |
| Schroder ISF Indian Opportunities F Acc SGD (CPF) | 10.61 | -12.49 | India Equity |
| GS India Equity Portfolio Acc USD | 10.42 | -11.23 | India Equity |
| Blackrock Latin American A2 USD | 9.69 | 7.35 | Latin America Equity |
Bottom Performing Equity Funds of 3Q22
The worst performing funds of 3Q22 were dominated by China-themed funds, including some focusing on the Greater China market. This was due to the poor performance of Chinese equities (highlighted in previous sections) amidst a slew of negative headlines. However, we remain positive on Chinese equities as a whole: with valuations and earnings estimates at all-time lows, we think there is significant room for Chinese equities to outperform once the situation turns around.
On some occasions, the currency class also had a significant effect on fund returns, especially given the USD’s sharp appreciation in 3Q22. For instance, the Blackrock China Flexible Equity A2 EUR-H (-24.46%) saw a significantly worse return compared to Blackrock China Flexible Equity A2 USD (-18.89%). This highlights the need for investors to carefully choose the currency class they wish to gain exposure to.
Table 3: Bottom performing equity funds of 3Q22
| Fund name | 3Q 2022 | YTD | Segment |
| Blackrock China Fund A4 GBP-H | -26.95 | -45.08 | China Equity |
| FTIF - Templeton China A Acc USD | -25.09 | -34.07 | Greater China Equity |
| Blackrock China Flexible Equity A2 EUR-H | -24.46 | -42.67 | China Equity |
| BNP Paribas China Equity Classic RH Cap SGD | -24.18 | -36.89 | China Equity |
| Manulife Global Fund - Dragon Growth AA MDISTG SGD-H | -23.69 | -37.37 | China Equity |
| Fidelity China Consumer A-ACC-AUD (hedged) | -22.68 | -33.54 | China Equity |
| NN (L) Greater China Equity P USD | -22.63 | -39.74 | China Equity |
| iFAST-NAM China Equity A SGD | -22.43 | -30.25 | Greater China Equity |
| Nikko AM All China Equity A SGD | -22.39 | -24.16 | China Equity |
| Janus Henderson Horizon China Opportunities A2 USD | -21.78 | -30.04 | China-Local Equity |
Looking forward
It remains to be seen whether the global economy can avoid a protracted slowdown, and investors should consider positioning their portfolios appropriately in light of the volatile macro environment. We therefore re-emphasise the importance of having a diversified portfolio, but also of careful product selection (be it in funds or stocks), both of which will remain key for investors looking to maintain a resilient portfolio.
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