Schroders' global investment team has stated that global stock markets experienced significant volatility in the third quarter, but overall continued to rise. Thanks to new stimulus measures announced by China, emerging markets performed strongly. Multiple markets reduced interest rates this quarter, with expectations of further rate cuts in the future helping fixed income markets achieve steady returns. Asian (excluding Japan) stocks saw steady gains, with Chinese stock market showing strong growth Specifically, Asian (excluding Japan) stocks saw steady gains in the third quarter. Thailand, Hong Kong, and mainland China were the best-performing markets in the MSCI AC Asia (excluding Japan) index, while South Korea, India, and Taiwan were the worst-performing index markets. China's government implemented a series of stimulus measures, from interest rate cuts to fiscal support, leading to strong growth in the Chinese stock market this quarter. Due to the sell-off of tech stocks this quarter, South Korea was the only index market to end the quarter in negative territory, as investors began to doubt how the expansion of artificial intelligence would benefit earnings. The strengthening of the Korean won also weighed on export-oriented stocks. The Taiwan stock market was also severely affected by the sell-off of tech stocks this quarter, with AI stocks being particularly hard hit. Despite poor quarterly performance, Taiwan remains the best-performing index market year-to-date. Emerging market stocks recorded strong growth in the third quarter, outperforming developed markets. The quarter started off turbulent, with tech-related stocks being heavily sold off, and the Bank of Japan raising interest rates leading to unwinding of carry trades. However, post these events, loose monetary policies in the US and China helped emerging markets achieve particularly strong returns in September. In the third quarter of 2024, the volatility of the Japanese stock market reached historic highs. The market hit new highs in early July due to continued positive momentum. However, the market sharply corrected by the end of July due to weak US economic data and the Bank of Japan raising interest rates, leading to turmoil in early August. These interest rate changes caused significant currency market volatility. During this quarter, the Japanese yen strengthened significantly against the US dollar. The yen's strength also had a significant impact on industry performance. Overall, domestically-oriented industries such as retail, construction, information, and communication performed steadily, while export industries like automotive and machinery underperformed. Small companies outperformed large cap stocks. From a fundamental perspective, corporate earnings and macroeconomic data showed steady progress throughout the quarter in Japan. Quarterly total earnings from April to June exceeded expectations. The weak yen supported this performance, along with strong recovery in domestically-oriented industries. After accounting for inflation, real wage growth turned positive for the first time in 27 months in August, continuing the positive trend in September. Thailand had the best performance in the third quarter, with a strong exchange rate and returns from the first phase of stimulus measures implemented by the new government in September. China announced monetary stimulus measures in September, with further expected measures including fiscal stimulus, resulting in double-digit returns in USD terms. South Africa performed exceptionally well, benefitting from a smoothly formed national unity government and a rate cut by the central bank in September, the first cut since 2020. India and Brazil underperformed, with the latter reversing recent monetary easing policies by raising interest rates to curb inflation and negatively impacted by government's increased fiscal spending. Taiwan lagged behind the broader indices, especially during the period of significant sell-off of global tech-related stocks, while Colombia's index market underperformed its emerging market peers due to weak oil prices. South Korea had negative returns, dragged down by rotation out of tech sector and concerns about the sustainability of memory recovery. Despite interest rate cuts, Mexico's index market ended the quarter in negative territory due to depreciation of local currency, weaker-than-expected earnings in the second quarter, and foreign stock outflows. Turkey was the worst-performing index market due to currency depreciation, weak second-quarter earnings, and outflows from foreign stocks. US stock market rose in the third quarter, with sector performances mixed The US stock market rose in the third quarter, but sector performances were mixed as some previous winners lagged behind while other previously avoided sectors gained favor. All sectors, except for energy, recorded positive returns, with utilities and real estate sector performing the best, while information technology sector only saw slight gains. Weak job data announced by the US in early August raised concerns among the public that the Federal Reserve may be too late to cut interest rates and could potentially harm the economy. The market began to digest the prospect of significant monetary policy easing before the end of the year. Meanwhile, doubts arose about whether substantial investments in technologies like artificial intelligence by companies could yield significant returns. These two factors triggered market volatility in early August. During this period, some companies with strong adaptability announced profits, helping calm investors' nerves. Subsequently, Federal Reserve Chairman Powell hinted at a rate cut in September in his speech at the Jackson Hole central bankers' symposium in August. Finally, the Federal Reserve announced a 50 basis points rate cut. Investor attention also turned to the US presidential election scheduled for November 5. In July, President Biden announced his withdrawal from this year's presidential race, supporting Vice President Harris as the Democratic candidate. Eurozone economic slowdown, market expects further interest rate cuts by ECB In the Eurozone, stocks in the Eurozone, as measured by the MSCI EMU index, rose in the third quarter. Real estate, utilities, and healthcare sectors led the growth as prospects of rate cuts prompted investors to reassess some previously neglected sectors. Energy and information technology were the main laggards, with negative returns for the quarter. The European Central Bank maintained interest rates at its July meeting, but subsequently lowered them by 25 basis points in September. Data showed a slowdown in inflation during this period, with the annual inflation rate dropping from 2.6% in July to 2.2% in August and 1.8% in September. However, economic activity indicators show a slowdown in the Eurozone. The IHS Markit Eurozone Composite Purchasing Managers' Index (PMI) for September was 48.9, an 8-month low. The deep decline in manufacturing was the main reason behind the overall decrease in activity. Services sector activity also decreased slightly.There is an increase, to 50.5. Weak PMI data, combined with weak inflation data, has led to market expectations that the European Central Bank will further cut interest rates.In addition, the French parliamentary elections ended in July, with no political group gaining an absolute majority. In September, President Macron appointed center-right politician Michel Barnier as Prime Minister. UK to cautiously proceed with further rate cuts In the UK, the Labour party's overwhelming victory in the early election sparked hopes for continued economic recovery in the UK, along with expectations of rate cuts, leading to an increase in the UK stock market this quarter. The Bank of England announced a rate cut in August, the first in four years. The new UK Prime Minister, Justin Slater, hinted at possible increases in taxes and cuts in spending due to an estimated public fiscal deficit of 220 billion. The Prime Minister added that those with "the broadest shoulders" would bear the heaviest burden, leading to speculation in the market about which taxes might increase. The preliminary estimate of the UK's second-quarter GDP was encouraging, but the National Statistics Office subsequently revised the growth rate to 0.5%, lower than the 0.7% quarterly growth achieved in the first quarter. Inflation statistics also became less encouraging as the quarter progressed. It was revealed that the annual consumer price index inflation rate reached the Bank of England's target of 2.0% in June, before slightly increasing to 2.2%. Bank of England governor Andrew Bailey promised to cautiously proceed with further rate cuts. Meanwhile, Deputy Governor Clare Lombardelli added that the central bank believes the current inflation outlook is benign, but there is a risk of inflation rising again in the "alternative world". During this period, the best-performing sectors were essential goods, finance, and non-essential goods. The energy sector performed significantly worse. Strong performance of US investment-grade bonds Regarding global bonds, Schroders Global Investment stated that the Fed's rate cuts and market expectations of a quicker easing of monetary policy led to a weakening of the US dollar against major currencies. In the bond market, US Treasury yields fell sharply this quarter, with the 2-year Treasury yield leading the way, dropping by 111 basis points as the yield curve steepened to reflect the prospect of lower interest rates. While global high-yield bonds continued to outperform global investment-grade bonds, US investment-grade bonds performed strongly. Amid market volatility, convertible bonds effectively resisted downward risks and showed good upward participation following the subsequent recovery in the stock market. The FTSE Global Focus index rose by 5.8%. This meant that with the support of strong downside protection, participation rates were close to 90%, higher than average levels. Significant drop in energy prices, mixed returns for digital assets Furthermore, the S&P GSCI index declined in the third quarter. Energy was the weakest component of the index due to global demand declines, while agriculture, industrial metals, livestock, and precious metals rose. In energy, despite escalating tensions in the Middle East, energy prices fell significantly due to concerns about weaker global demand. In agriculture, the prices of coffee, cocoa, and sugar rose sharply in the third quarter, while soybean and wheat prices fell slightly. Among industrial metals, aluminum, zinc, and copper rose slightly, while lead prices fell. Precious metals components surged in the third quarter, with gold steadily rising. Returns for digital assets in this quarter were mixed. Bitcoin had a 1% return in the third quarter (year-to-date +50%), while Ethereum fell by -24% in this quarter, bringing its year-to-date return to +14%. Following the decline in August, digital asset markets saw a recovery in September with the support of the mid-month rate cut by the Fed. The main theme in cryptocurrency this year has been institutional access, which continued in the third quarter with several large asset management companies launching their Ethereum spot ETFs. The US Securities and Exchange Commission also approved options trading on Bitcoin ETFs, which will enhance market efficiency and further link cryptocurrencies with traditional markets. This trend of further institutionalization of digital assets may continue, partly due to expectations of clearer US regulation, as both presidential candidates have shown support for the digital asset industry.