In August, financial market dynamics were driven by three main factors: ongoing tensions between the United States and Iran and their impact on energy markets, the hawkish stance adopted by the new Federal Reserve leadership at Jackson Hole, and the broad-based increase in government bond yields.

Equities

Despite a more challenging macroeconomic environment, August was a positive month for global equities. Emerging markets and Japan were the main outperformers. The U.S. market also posted gains, supported by solid corporate earnings and continued enthusiasm around artificial intelligence; however, rising yields and some rotation out of the technology sector limited overall performance.

European markets generally lagged behind, while parts of Asia, particularly Taiwan and South Korea, came under pressure amid concerns over semiconductor supply chains.

Given market conditions and our expectations, we increased the allocation to foreign equities in the fund from 26.3% to 26.6%, with a particular increase in the weight of funds invested in gold and silver mining companies.

Bonds

Global sovereign bond markets experienced a broad sell-off as investors reassessed the outlook for inflation and monetary policy. The more hawkish rhetoric from the new Federal Reserve leadership at Jackson Hole, combined with persistent geopolitical tensions and elevated energy prices, led to higher bond yields in the U.S., Europe, the U.K., and Japan.

Emerging market sovereign bonds also weakened, while corporate bonds were relatively more resilient, and high-yield bonds outperformed government bonds.

In Armenia, driven largely by excess liquidity in the banking system, the yield curve on Armenian government bonds shifted downward across the entire curve, with long-term yields declining more markedly than short- and medium-term yields.

Given market conditions and our expectations, we increased the allocation to deposits in the local market from 23.7% to 25.0%.

FX Market

Armenia continues to benefit from significant foreign currency inflows. In this environment, despite periodic foreign exchange purchases by the Central Bank of Armenia, the Armenian dram continued to appreciate against the U.S. dollar, strengthening by 0.5%.

At the same time, the dram depreciated by 0.4% against the euro and 0.25% against the British pound, reflecting the weakening of the U.S. dollar in international FX markets during the month.

We increased the allocation to foreign currency assets in the fund from 34.6% to 35.5%.

In August, the fund returned 1.35%. The largest positive contribution to performance came from foreign equities, followed by Armenian government bonds and deposits. Armenian corporate bonds also contributed positively to performance, while foreign bonds had a negative impact.