Three Things We Are Watching
Falling energy prices. The United States and Iran signed a memorandum of understanding (MoU) on 17 June, driving further declines in energy prices. Oil is close to pre-war levels, and fertilizer prices are also easing. However, LNG prices remain high and diesel refining margins have stayed firm. How quickly damage to Gulf energy sites is repaired will drive the next leg of price falls. This matters most for lower-income emerging markets, where the growth rebound hinges on cheaper energy.
Semiconductor pivot. Global investors are rotating out of hyperscalers and into chip makers, on concerns that hyperscaler spending may not last. Asia is the main beneficiary, given it is home to the world's leading chip makers. Concerns over the concentration of returns are valid. However, with capacity sold out through 2027, we believe earnings risk is limited. Valuations are elevated versus history but still sit below the broader tech sector.
Corporate governance reform. Malaysia's government-linked investment companies (GLICs) have backed the newly announced Value-Up principles. They join South Korea and Singapore in setting out frameworks to improve governance, deepen liquidity, and lift shareholder returns. Unlike Singapore, however, Malaysia's initiative lacks fresh capital commitments from the GLICs. Without capital backing, the impact on valuations is likely to be limited.
Market Review
Emerging market equities declined in June, broadly in line with global markets, as renewed volatility in the artificial intelligence trade and persistent geopolitical uncertainty offset the relief that lower oil prices provided later in the month.
Outlook
Emerging market chip makers in Taiwan and South Korea, electric vehicle and battery firms in China, and robot makers across Asia could benefit from rising spending by hyperscalers. Beyond Asia, Latin America owns large reserves of copper, lithium and rare earth minerals. These materials are critical for cleaner energy and electric transport. This strengthens the region's role in the global energy transition.
WHAT ARE THE RISKS?
All investments involve risks, including possible loss of principal.
Equity securities are subject to price fluctuation and possible loss of principal.
Commodity-related investments are subject to additional risks such as commodity index volatility, investor speculation, interest rates, weather, tax and regulatory developments.
International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Investments in companies in a specific country or region may experience greater volatility than those that are more broadly diversified geographically.
The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries. There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalisation, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Hong Kong and Taiwan could be adversely affected by its political and economic relationship with China.
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