Marketing Communication

India’s bull market and China’s sluggish economy create two different challenges in the near term, but JMG’s portfolio managers are finding opportunities everywhere.

China vs. India

The two most important regions for emerging market (EM) equity investors, China and India, have been challenging to navigate lately—but for opposite reasons. India’s booming economy has boosted its stock market and valuations to 20-year highs, largely driven by small cap stocks. With roughly a quarter of the portfolio invested in Indian stocks—significantly more exposure to India than the benchmark—the JPMorgan Emerging Markets Investment Trust plc (JMG) has participated in the market rally. Indeed, the portfolio’s single largest active position vs. the benchmark is Tata Consultancy, which contributed positively to the portfolios returns. However, some of the best-performing Indian stocks were in highly valued areas of the market where JMG has less exposure.

It's a completely different story in China, where slower economic growth has dampened returns for Chinese companies. JMG’s portfolio managers have long been cautious on China and JMG has consistently had less exposure to China vs. the benchmark, even including companies based in Hong Kong. While this underweight has been helpful, the economy struggled even more than expected until later in the summer of 2024 and some positions, particularly in smaller consumer and financials companies, detracted from performance. The portfolio managers exited a number of small positions and used the proceeds to invest in new ideas across the emerging markets.

Seven stocks, seven countries

In 2024, the portfolio managers made seven new investments across a wide variety of businesses that are based in seven different markets. These include Banco Bilbao Vizcaya Argenta, a Spanish bank with significant operations in Mexico and Latin America, Praj Industries, a unique Indian consulting business with expertise in biofuel production and Arcos Dorados, the dominant McDonald’s franchise operator in Latin America. Rounding out the new purchases are South Korea’s KIA, OTP Bank in Hungary, China-based Hongfa Technology and ASE Technology in Taiwan.

The diversity of these businesses reflects the JMG’s portfolio managers’ focus on finding good businesses with strong prospects and governance anywhere in the world. Not surprisingly, some sectors have more of these businesses than others and many of the new purchases join the portfolio’s high exposure to the information technology and financial sectors; almost a third of JMG stocks have businesses in either technology services or hardware and roughly a quarter are classified as financials. The portfolio also has a strong active position in consumer staples companies. Energy remains the largest sector underweight.

Large positions in some of the top holdings tend to drive some of the resulting country positions. For example, Argentina-based Mercado Libre is the dominant ecommerce platform in Latin America and one of the top active positions in the portfolio. Similarly, the portfolio’s exposure to South Africa is a result of diverse holdings including Supreme Industries, a plastics manufacturer, Capitec, a bank, and Clicks, an online pharmacy. Other key positions in JMG include TSMC, an essential player in the global technology supply chain, Tencent, the dominant Chinese internet platform.

Looking ahead

It’s been a tough couple of years for emerging market equities although China was the main drag on performance for the MSCI EM benchmark—many other countries produced double-digit returns that were in line with Europe or Japan. JMG’s performance trailed the benchmark earlier this year but in recent months the portfolio has been notably outperforming.

The Chinese market could remain volatile in the near term. Chinese consumers are highly exposed to the property market—over 50% of assets are in housing—and prices continue to fall. The government’s recent stimulus actions appear to acknowledge the issue and sent the stock market soaring. However, it’s not clear that it will fix the underlying fundamental problems.

Looking ahead, EM economies are likely to benefit from interest rates coming down in the US. High real rates in the emerging markets offer ample scope for their central banks to cut rates, supporting growth in credit and consumption, both of which are important for many of JMG’s holdings.

In the meantime, the portfolio managers will keep their focus on the diverse collection individual businesses that make up JMG and the most interesting opportunities that arise across all EM equity markets.

The securities above are shown for illustrative purposes only. Their inclusion should not be interpreted as a recommendation to buy or sell.

Summary Risk Indicator

The risk indicator assumes you keep the product for 5 year(s). The risk of the product may be significantly higher if held for less than the recommended holding period

Investment objective

This Company aims to maximise total returns from Emerging Markets and provides investors with a diversified portfolio of shares in companies which the Manager believe offer the most attractive opportunities for growth. The Company can hold up to 10% cash or utilise gearing of up to 20% of net assets where appropriate. Gearing may magnify gains or losses experienced by the Company.

Risk profile

  • Exchange rate changes may cause the value of underlying overseas investments to go down as well as up.
  • Investments in emerging markets may involve a higher element of risk due to political and economic instability and underdeveloped markets and systems. Shares may also be traded less frequently than those on established markets. This means that there may be difficulty in both buying and selling shares and individual share prices may be subject to short-term price fluctuations.
  • Where permitted, a Company may invest in other investment funds that utilise gearing (borrowing) which will exaggerate market movements both up and down.
  • External factors may cause an entire asset class to decline in value. Prices and values of all shares or all bonds and income could decline at the same time, or fluctuate in response to the performance of individual companies and general market conditions.
  • This Company may utilise gearing (borrowing) which will exaggerate market movements both up and down.
  • This Company may also invest in smaller companies which may increase its risk profile.
  • The share price may trade at a discount to the Net Asset Value of the Company.
  • The Company may invest in China A-Shares through the Shanghai-Hong Kong Stock Connect program which is subject to regulatory change, quota limitations and also operational constraints which may result in increased counterparty risk.
This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a recommendation, to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Changes in exchange rates may have an adverse effect on the value, price or income of the products or underlying overseas investments. Past performance and yield are not reliable indicators of current and future results. There is no guarantee that any forecast made will come to pass. Furthermore, whilst it is the intention to achieve the investment objective of the investment products, there can be no assurance that those objectives will be met. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. Investment is subject to documentation. The Annual Reports and Financial Statements, AIFMD art. 23 Investor Disclosure Document and PRIIPs Key Information Document can be obtained in English from JPMorgan Funds Limited or at www.jpmam.co.uk/investmenttrust. This communication is issued by JPMorgan Asset Management (UK) Limited, which is authorised and regulated in the UK by the Financial Conduct Authority. Registered in England No: 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.
Image source: Shutterstock
09cx240611110421