During the third quarter of 2023, global equity markets lost the momentum that had propelled markets earlier in the year as it grappled with substantial challenges including rising geopolitical tensions in Ukraine and Israel as well as continued inflationary pressures on the global economy. The MSCI ACWI, while still showing a year-to-date gain of over 10%, experienced a sharp decline in September, with a quarterly return dropping to -3.4%, a stark contrast to the robust performance in the initial two quarters.
From a factor perspective, global equity markets have shifted preferences. Initially, there was a strong inclination towards Volatility subfactors, especially high beta, in developed markets from Q1 to Q2. However, the focus now seems to be on Quality subfactors, indicating a more risk averse approach from investors. Earlier in the year, it appeared that many managers were willing to embrace higher risks in volatile equities, which proved beneficial then but could have adverse consequences now. In Q3, all regions except the US exhibited a clear preference for Value equity over Growth equity.
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