In July, global markets experienced contrasts, with rising asset prices highlighting the fragility of an economic cycle. Despite positive returns from equities and bonds, Emerging Markets faced challenges such as a strengthening U.S. dollar, geopolitical friction, and growing divergence between domestic and export-led economies, testing their resilience.
Global Overview: Tariff Shadow and Shifting Momentum
July’s global narrative revolved around the looming impact of U.S. tariffs, shaping corporate and consumer behavior. This “front-loading” effect, especially in export-heavy economies, fueled short-term growth but raised questions about the sustainability of this momentum into Q3.
Inflation trends diverged across regions. In the U.S., the pass-through of tariffs to consumer prices began to show, with PCE inflation inching up to 2.6%. Still, market expectations of a Federal Reserve rate cut in September gained traction, driven by cooling labor market data and downward wage pressure. Elsewhere, OECD headline inflation fell to a three-year low of 4.0%, giving central banks in developed economies a bit more breathing room.
Bond markets showed a push-pull dynamic with steep yield curves, with long-duration instruments attracting income-seeking investors. Credit spreads tightened, signaling market confidence but leaving little room for upside. The U.S. dollar rebounded, creating renewed headwinds for EM currencies and capital flows.
Emerging Markets: Divergence, Disruption, and Defensive Strength
In July, Emerging Markets experienced a complex backdrop, with equity markets experiencing a 1.9% increase on the MSCI EM Index, largely due to Asia’s strength and China’s unexpected rebound.
Asia ex-Japan experienced a bifurcation between externally and internally driven economies, with export-focused countries like South Korea, Taiwan, and Malaysia facing increased pressure due to the U.S. tariff regime. Semiconductor-linked sectors initially benefited from order front-loading but faced uncertainty. India, Indonesia, and the Philippines remained insulated, supported by domestic demand and infrastructure spending. India’s 6.4% growth outlook held steady, though July’s equity market correction (-5.1%) pointed to valuation fatigue and weak earnings momentum.
China‘s equities rose 4.8% in July, reaching 23% year-to-date, due to improved investor sentiment and a softening of U.S.-China trade rhetoric. The IMF’s revision of China’s growth forecast to 4.8% further boosted the positive momentum, with stabilizing consumer sentiment and recovery in export categories.
Latin America‘s markets, particularly Brazil, experienced a 6.9% decline due to reassessing earnings expectations and macro stability, while political noise and fiscal concerns prompted some rotation out of the region.
Fund Performance & Attribution – July 2025
The Milltrust Global Emerging Markets Fund saw a 0.5% (net, USD) return in July 2025, despite consolidation after a strong Q2. Despite strength in China, Taiwan, and Malaysia, Brazil and India experienced weakness due to earnings disappointments and risk aversion. The Fund’s alpha drivers remained stock-specific, aligning with its bottom-up investment discipline.
Where the alpha came from?
– China contributed +1.7% to Fund return, with consumer-facing small caps like 361 Degrees and TravelSky experiencing a 25% and 20% increase respectively. Inspur Digital saw a 39% increase, thanks to strong earnings in China’s enterprise IT segment.
– Taiwan’s semiconductor supply chain saw a 1.15% increase, with TSMC, Elite Material, and Zhending Technology all delivering double-digit returns. The portfolio’s bias towards “second-derivative” tech names benefited investors seeking AI-related exposure.
– Malaysia’s infrastructure and building materials sector saw a 0.3% increase, while Hume Cement and Malayan Cement saw a 12% and 10% growth, while Kelington and Vitrox saw a 13% and 8% increase in export and tech sectors.
– South Korea contributed +0.2% to the industrials complex, while Kyung Dong Navien (+16%) and HD Hyundai Marine Engine (+27%) performed strongly due to increased capex spending, while LIG Nex1 (+13%) continued to gain on growing defence budgets.
Where we gave some back?
– Brazil‘s largest detractor, Magazine Luiza, Sendas Distribuidora, and Cosan, experienced significant sector weakness, with valuations remaining discounted, indicating potential upside opportunities for these holdings.
– India‘s financial sector experienced a -0.55% decline due to investor fatigue and weak earnings, with financials like Bajaj Finance, Kotak Mahindra Bank, and PNB Housing experiencing weak performance, indicating a technical correction.
– South Korea IT companies like SK Hynix, Park Systems, and Leeno Industrial experienced profit-taking, affecting performance by -0.3%. However, this weakness is temporary and valuations remain attractive.
Looking Ahead
The company’s Q2 performance in July demonstrates that emerging market volatility is not linear. Despite setbacks in certain country allocations and high-beta names, the company’s strategy remains strong, with consumer upgrades, digital infrastructure, energy transition, and supply chain reconfiguration remaining key investment themes. We remain confident that our high-conviction, bottom-up approach can continue to navigate through short-term dislocations and uncover long-term value. Despite global macro crosswinds, the dispersion across regions and sectors is creating a fertile hunting ground for alpha.
