OnePath OA IP-OP Global Share EF (MMF0108AU) Report & Performance

Global equities finished marginally higher in April as gains in Europe and the US were offset by weakness in emerging markets. In the US, expectation-beating results from big tech groups drove gains; however, conflicting macro data also persisted, weighing on investors and consumers. Despite falling inflation, US growth slowed to an annualized rate of 1.1% in the first quarter, below forecasts, and the US Conference Board’s measure of consumer confidence dipped to a nine-month low, adding to indictors of a potential downturn. European equities outperformed with Hermes and LVMH reporting strong sales. At the same time, the continent’s macro outlook remained weak, as Eurozone first quarter GDP undershot expectations. China weighed down emerging markets performance as stocks weakened on geopolitical concerns, despite improving company and economic performance following the reopening. China’s economy grew by 4.5% in the first quarter, beating expectations, although companies gave a cautious view with JD.com warning that a full consumer recovery could take time. In the meantime, China’s Politburo signaled that it was too soon to tighten monetary policy, which gave Chinese stocks an end-of-month boost.

Most major equity markets weakened in February as mixed data renewed concerns about the trajectory for inflation and interest rates. However, European equities made modest gains in euro terms, bucking the downward trend. The European Commission projected that the EU would narrowly avoid recession as falling natural gas prices began to take the pressure off consumers and businesses. Nevertheless, inflation data from France and Spain towards the end of the month reignited concerns that the European Central Bank would need to continue aggressive interest rate rises. US equities gave up some of January’s gains, as economic data fed expectations that interest rates would move higher and remain elevated for longer than previously forecast. Renewed dollar strength raised pressure on emerging markets, and investors took a pause on China after a prior strong run for stocks. However, there was positive economic data as Chinese factory PMIs hit their highest level in more than a decade in February, signaling that the country was shaking off the effects of recent COVID outbreaks and the end of its strict zero-COVID stance.

Central banks around the world continued to battle inflation with the persistent hiking of interest rates in the fourth quarter. However, November data, particularly in the US, EU and UK, indicated a lower year-over-year inflation rate as energy prices fell from highs seen at the end of the second quarter. Hopes of an end to the Federal Reserve’s tightening cycle boosted US equities early in the quarter, with consumer price inflation softening to 7.1% in November.

However, Fed Chair Jerome Powell warned that policymakers still had “more ground to cover” in the fight against inflation, dampening the mood in markets in December. Recession fears also intensified, and the US dollar, which had been a pillar of strength the past few years, retreated 8.5%. European Central Bank President Christine Lagarde cautioned that interest rates may need to be increased to levels that would restrict economic growth. In the UK, budget cuts and tax rises under new Prime Minister Rishi Sunak helped stabilize the sterling but did not alleviate pressure on the economy.

The Bank of England hiked interest rates again in December, while UK growth was revised down to -0.3% in the third quarter with recession forecast to last until the end of 2023. There were some positive signals as mild fall weather reduced the drain on European natural gas reserves through October and November, and forecasts for above-average temperatures in Northern Europe into 2023 further relieved pressure on natural gas prices.

China ended the year on a strong note with optimism for the economy. In December, China abandoned many elements of its zero-COVID policy following public protests, releasing a rally in share prices and pent-up demand for tourism. At the same time, COVID cases spiked sharply, leading some countries to introduce renewed checks on visitors from China.

The rise in infections also prompted concerns about the impact on global supply chains. Indian equities benefited from the continued shift in supply chains away from China and the country’s expanding middle class consumer base. The World Bank upgraded its fiscal year 2023 GDP growth forecast for the country to 6.9%, expecting it to remain one of the fastest growing major economies in the world.

Indonesia’s economy also continued to perform strongly, registering 5.7 year-onyear growth in the third quarter, buoyed by investment and consumer spending. In Latin America, Brazilian markets were volatile following the victory of the leftwing’s Luiz Inacio Lula da Silva in presidential elections, with budget cap changes prompting concerns about looser fiscal discipline.

Global stocks continued to sell-off in September as signals of further aggressive tightening and concerns about recession weighed on the markets. The Federal Reserve led the way with another 75bps hike in interest rates following a sharp increase in consumer prices in August. Inflation also spiked across Europe, reaching a near seven-decade high in Germany, with the European Central Bank shifting its focus from protecting economic growth to combatting price rises. The new UK cabinet led by Prime Minister Liz Truss provoked further market volatility with a badly received fiscal package that prompted emergency measures from the Bank of England. Despite rising recession concerns, European equities outperformed relative to other major markets in part due to energy, commodities, and financial services. Emerging markets equities were the worst relative performers, as declines in Chinese shares dragged on performance. Despite promises of further stimulus, Beijing’s zero-COVID policy and softening global demand hit exports, while other tech-focused exporting nations including Taiwan and South Korea witnessed weak semiconductor sales. In contrast, India was a relative bright spot and Brazil upgraded its growth outlook for the year. The Fund seeks to benefit from structural growth opportunities, with acceptable risk levels. The binding element across our portfolio holdings is that we believe they can grow at attractive rates even in a slower economic growth environment. We think defensive growth, which can provide us with good downside protection, combined with secular growth, which allows us to participate in up markets, is the formula that’s required to navigate these challenging markets and to aim to beat the benchmark with lower volatility.

Global stocks continued to sell-off in September as signals of further aggressive tightening and concerns about recession weighed on the markets. The Federal Reserve led the way with another 75bps hike in interest rates following a sharp increase in consumer prices in August. Inflation also spiked across Europe, reaching a near seven-decade high in Germany, with the European Central Bank shifting its focus from protecting economic growth to combatting price rises. The new UK cabinet led by Prime Minister Liz Truss provoked further market volatility with a badly received fiscal package that prompted emergency measures from the Bank of England. Despite rising recession concerns, European equities outperformed relative to other major markets in part due to energy, commodities, and financial services. Emerging markets equities were the worst relative performers, as declines in Chinese shares dragged on performance. Despite promises of further stimulus, Beijing’s zero-COVID policy and softening global demand hit exports, while other tech-focused exporting nations including Taiwan and South Korea witnessed weak semiconductor sales. In contrast, India was a relative bright spot and Brazil upgraded its growth outlook for the year.

Global equities declined as renewed concerns about rising interest rates and energy shortages weighed on developed market stocks. Data showed that US inflation moderated in July, prompting hopes that price rises had peaked. However, at the central bankers’ meeting in Jackson Hole, Federal Reserve Chair Jerome Powell pledged to continue tightening, despite the risk of pain for households and businesses. US equities reversed earlier gains and underperformed for the month. European equities fell more steeply as European Central Bank policymakers signaled sharper interest rate rises.

Eurozone GDP growth remained resilient in the second quarter, but rising prices continued to fuel recession fears. Emerging market equities finished slightly positive for August, fed by gains for Latin American markets benefiting from commodity price strength. In China, a drought impacted factory operations and the country’s deepening property crisis weighed on economists’ growth expectations. Renewed lockdowns in cities including Shenzhen and Dalian added to market concerns.