Clearing off for the Fed Hike. The Fed will hike rate for the first time in eight years and the first time since the Great Financial crisis. Only a systemic event will be able to change the course of this decision, which is now getting priced by markets and will drive to some subpar performance in this late part of the year. Once again, there are little reasons for the Fed not to hike: the US economy is on a solid path, the slack of the labor market is being resorbed with a full employment rate being reach. The Fed needs to normalize rates in order to recover a better control of the yield curve and get back the resources to fight against any events that may affect the US economy. The Fed wishes to avoid a liquidity trap and needs to quite its zero-bound monetary policy. Our expectation will be about a moderate rate hike starting in December with a potential for two to three additional hikes in the course of next year, all of them by 25bps. We expect the impact of this hike will be minor on developed markets as the ECB and the BoJ will respectively extend and maintain their own quantitative easing. The impact will be more important for emerging markets. The tide has not returned yet for emerging markets. There are elements of stabilization for next year, but we remain cautious for multiple reasons. First the Fed hike will create uncertainty and risk of systemic risk. The USD will appreciate and a strengthening USD is a negative event for emerging economies and markets. This will also signify that the financing conditions in USD will tighten which is a negative any country dependent on USD financing.This will slow the growth which is already weak. Latam will keep being affected along with some South-East Asia countries. Eastern Europe and North Asia will fare much better. We also expect that the Fed hikes will keep deflating the bubble of inflows that have accumulated in emerging assets with the quantitative easing initiated by the Fed. At the end of 2012 emerging markets had recorded a highest cumulative inflows for many years at more than 450 bn USD. We estimate that already 104 bn USD has been exiting emerging markets since then and we expect this trend to accelerate. Most importantly, the level of corporate debt has been spiraling up in emerging economies. The economic momentum will remain weak for EM with three reasons: the global trade cycle won’t fully restart before the second half of next year, second the energy and the commodity cycle remains weak. Third, EM economy will enter themselves into a deleveraging. Investors have long time invested on the fact that emerging markets had a growth premium versus developed markets and was therefore compensating for some of the risk. EM markets have lost their growth premium. At that point of time, China provides a different picture both from an equity and fixed income perspective. The valuation is low, the market is under-owned (has been sold already) and the macro is stabilizing with low expectations. More importantly, among EM will better digest the effect of a Fed hike and an appreciating USD. On the macro front, the downward momentum is starting stabilizing. The base effect will provide better statistical reading and PMI for service. Outflows to sustain the currency have also marked a better reading showing slightly less pressure. The property market in the first and second tier cities has shown sign of stabilization and even improvement for the first tier cities while our meeting with corporations are showing that this optimism is getting transpiring into better or more stable outlook. China, both from micro and macro is not out of the wood. Indeed, the deflation trend is still there and the latest inflation ready at 1.3% is at an alarming level. The PPI remains anchored in deep negative territory reflecting the fall in commodity prices but also overcapacity which will take time to resorb. However, among emerging market investors, China equities is one of the largest or probably the largest underweight positions. It has room to surprise or less room to underperform others which have higher expectations. Indeed, one should not forget that China will be one of the least affected emerging markets when Fed will hike in December. In this environment, we are consequently reducing our allocation to emerging markets while leaving some room to China. While we maintain our exposure to equities, this is with more emphasis to developed markets where we are chasing sector and countries opportunities.