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.