Market volatility continues after US rate cut

Equities in emerging markets rallied after the unexpected 0.75% cut in the benchmark US Fed Funds rate made on Tuesday, but fell back again on Wednesday in another period of volatile trade.

The Federal Reserve justified its action on the basis of the “weakening economic outlook and increasing downside risks to growth.” The US is still the world’s largest economy, although global dynamics have changed and the Chinese economy became the largest growth contributor in 2007.

Chris Palmer, Head of Global Emerging Markets at Gartmore is prepared for further uncertainty in financial markets in the months to come, but highlights that the underlying attractions of emerging market equities. “We continue to believe that both economic growth and earnings in emerging markets will prove attractive over the course of the full year. Companies in emerging markets started 2008 poised for another solid year in terms of earnings growth. The base-line forecast for the year was 15 to 20%, although we recognise that we may now see some modest downward revisions in the months to come”.

Charlie Awdry, Fund Manager of the Gartmore China Opportunities Fund, also acknowledges the more volatile market environment, but highlights that selling has taken place across sectors in a largely indiscriminate manner. “I believe that de-rating has been excessive in China, and not commensurate with the tighter monetary policy environment announced in December.”

Gartmore’s Emerging Market Funds ranked in the top quartile relative to peers in the year to December 2007. Its China Opportunities Fund was ranked first among peers over the same timescale.