The key factors that have underpinned portfolio resilience have been our continued focus on sustainable growth over the long term.
- Exposure to leading businesses across different sectors
- Shared interest in and engagement on ESG, with companies we invest in
- Consumer and business trends accelerating a shift in favour of leading IP and increased digitalisation.
In the last 12 months we have built increased conviction in both the strength of Online to Offline business models and the long-term growth outlook.
Hello and welcome to the quarterly update from the Martin Currie Global Emerging Markets (GEM) team.
My name is Andrew Mathewson and I’m one of the portfolio managers on the GEM team.
As regular followers will know, our GEM equity strategy has delivered strong alpha through long term, stock driven investing with market leading ESG integration.1
Of course, 2020 has been an extraordinary time for everyone and GEM investing is no different. Although like global markets the emerging market indices saw a dramatic sell off earlier in the year, the recovery in the second quarter has been almost as rapid. In terms of the virus impact the GEM asset class has actually faired OK given that approximately two thirds of the index is represented by China, Korea and Taiwan – these three countries have contained the spread of the virus in their countries better than almost any other major economy globally. Of course, on the other hand, countries like India and Brazil have faced severe issues like we have experienced in the UK and the US.2
In corporate terms, we saw a big impact on Chinese businesses’ operations in the first quarter of the year and whilst they have begun to recover in the second quarter, we are now seeing the impact on company results in the rest of our markets.
For us quarterly results are always full of noise and light on long-term signals but that is especially true in this current period. We remain focused on assessing the long-term drivers and structural shifts taking place in the global economy and ensuring we are positioned to benefit.
As very long-term and low turnover investors we have made only handful of changes to our portfolio. Our exposure to leading businesses across each sector and the focus on sustainable growth continues to serve us well.
Over the last few months, we have more than kept pace with the incredible rally in the market with our long-standing exposure to Electric Vehicle (EV) battery manufacturers proving to be particularly helpful. Another driver was the strong performance from one of our most recent purchases - Meituan Dianping* – which we added to our portfolio at the beginning on the quarter. This is a Chinese O2O (or online to offline) business, with food delivery being the largest driver of their sales. We have broad exposure to this space across many emerging markets through our existing investment in Prosus / Naspers and in the last 12 months we have built increased conviction in both the strength of the O2O business models and the long-term growth outlook, so we took the opportunity to start a position in the Chinese leader.
At the start of the second quarter we also added the Brazilian financial market infrastructure provider, B3*, to the portfolio. We believe the outlook for B3 is strong as financial sophistication develops in Brazil. Upon adding any stock to the strategy, we send a letter to the company to introduce who we are, our approach to investment and how we think about share ownership. Within our letter, we share our governance and sustainability principles, and we detail our willingness to help them on their ESG agenda. In this case, our letter was received with a very pleasing response from the company and subsequently we engaged with them on the topic of management remuneration. B3 already provides good disclosure and the evaluation metrics are clear but we see room for improvement on specific targets and we are working to advise the company on how they can evolve their policy.
These two portfolio additions highlight the continued diversity of investment opportunity we see across emerging markets despite the ongoing COVID situation.
I’ll conclude by highlighting that the consumer and business trends experienced during this difficult time have only accelerated existing shifts in favour of leading IP businesses and increased digitalisation of economies. The GEM asset class and, our portfolio in particular, is well positioned to benefit from these long-term trends.
Thanks for listening.
* The information provided should not be considered a recommendation to purchase or sell any particular security. It should not be assumed that any of the security transactions discussed here were, or will prove to be, profitable.
1 Source: Martin Currie, August 2020
12-month standardised performance
|To end Q2 2020||To end Q2 2019||To end Q2 2018||To end Q2 2017||To end Q2 2016|
|MSCI Emerging Markets||(3.0%)||1.6%||8.6%||24.2%||(11.7%)|
Past performance is not a guide to future returns. The return may increase or decrease as a result of currency fluctuations.
Source: Martin Currie, three month period to 30 June 2020. All data presented is the Martin Currie Global Emerging Markets US$ composite. Gross data is presented without deducting investment advisory fees, broker commissions, or other expenses that reduce the return to investors. The figures provided includes the re-investment of dividends. MSCI Emerging Markets Index used as benchmark. The performance record noted above is clear representation of the Global Emerging Market strategy performance over the period shown. Performance information since inception in complete 12 month periods is available upon request.