Positive Momentum in Emerging Markets

Martin Currie: Global Emerging Markets- Q4 2020 Review and Outlook

    David Sheasby

    Mark ChoHead of US Intermediary & Client Portfolio Manager, Martin Currie

    John Gilmore

    Colin DishingtonPortfolio Manager, Martin Currie

    Portfolio Manager, Colin Dishington reviews emerging markets in Q4 2020 and why he believes there are exciting investment opportunities in 2021.

    SCRIPT

    Welcome to our Q4 update and 2021 outlook webcast for the Martin Currie Global Emerging Markets strategy. My name is Mark Cho and I’m a client portfolio manager for Martin Currie and joining me is my colleague and co-portfolio manager on the Emerging Markets strategy, Colin Dishington. Colin, thanks for joining me.

    STRONG QUARTER

    Mark: Q4 was a strong quarter to say the least for Emerging Markets. During the quarter, we saw the MSCI Korea Index and MSCI Taiwan Index up around 39% and 23% respectively1. What were some of the catalysts behind those returns?

    Colin: Thanks Mark, well there were actually a couple things that drove returns. First of all, the countries you highlight handled the COVID-19 pandemic better than all other major countries and we’re seeing economic activity get close to pre-pandemic levels. Now, Taiwan was one of the only countries to expand last year, while Korea contracted by only 1% and secondly, both countries are export driven economies. We saw an increase in export demand and improvement in overall trade sentiment following the election of Joe Biden in the US.

    "A favourable macro tailwind doesn’t hurt, but we believe that a high conviction, stock-driven approach can lead to strong returns in different market environments.”

    Mark: Colin, I certainly don’t mind a favourable macro tailwind, but many of our viewers know our approach is one that looks to minimise the macro factors, with stocks driving the majority of our returns. Any interesting observations from that perspective last quarter?

    Colin: Yes, a favourable macro-economic certainly doesn’t hurt, but we are believers that a high conviction, stock-driven approach can lead to strong returns in different market environments. For instance, it may surprise some of our viewers and listeners that our strategy actually outperformed the S&P 500 Index over the last five years2. Even with the low sentiment towards emerging markets and a trade war between the US and China, we’ve been able to outperform because of this stock-driven approach.

    Now, you specifically asked about last quarter and interestingly we saw a significant reversal in style leadership from growth to value in November and December. Given our emphasis on running a balanced portfolio, we were still able to outperform the MSCI Emerging Markets Index in those two months3. Now of course, two months is a small sample size but the same happened in 2016, a longer value-led period.

    OUTLOOK FOR 2021 AND BEYOND

    Mark: Thanks Colin, so to close the loop on Q4, the areas that helped drive returns for the quarter were technology, financials and materials. We had positive contribution across eight of the eleven sectors. Technology and financials would make sense given our comments, while consumer discretionary was the biggest detractor from a sector perspective4. Last question for you Colin, given our long-term investment horizon, what is your outlook for 2021 and beyond?

    Colin: There is such a strong investment opportunity in Emerging Markets. Quite simply, the market continues to underestimate the true worth of sustainable growth businesses. Whether that’s because of short termism or over-reaction to sensational political soundbites, the market is failing to keep up with what's really happening at a company level.

    As I look forward to the remainder of 2021 and beyond, that same undervaluation of outstanding company-level fundamentals that's driven our performance over the last five years is what's keeping us excited today. By way of an example, I'm sure everyone is familiar with the meteoric rise of Tesla over the last 18 months and how the markets really woken up to the prospect of electric vehicles going mass market. Our long-established focus on ESG meant that we were investing in this space long before it became mainstream.

    As I look across the strategy, I can point to equally exciting opportunities across a broad range of sectors including e-commerce, on-line gaming, life insurance, food delivery, healthcare and natural gas. This highlights a real breadth of opportunity that stems well beyond 2021.

    Colin thanks again for your comments today. We hope our viewers found our update informative. Please feel free to reach out should you any questions.

    Sources:

    1. Source: MSCI as at 31 December 2020.

    2. Source: Martin Currie and S&P Dow Jones Indices as at 31 December 2020. Martin Currie performance relates to Martin Currie Global Emerging Markets US$ composite. Net of investment advisory fees, broker commissions, and all other expenses borne by investors. A fee rate of 0.70% has been used for the calculation of net of fee performance data. This is our standard fee offering for a US$100 million mandate for this strategy. The figures provided includes the re-investment of dividends. Performance data is supplementary to the GIPS disclosures provided.

    3. Source: Martin Currie as at 31 December 2020. Strategy performance relates to Martin Currie Global Emerging Markets US$ composite. Net of investment advisory fees, broker commissions, and all other expenses borne by investors. A fee rate of 0.70% has been used for the calculation of net of fee performance data. This is our standard fee offering for a US$100 million mandate for this strategy. The figures provided includes the re-investment of dividends. Performance data is supplementary to the GIPS disclosures provided.

    4. Source: Martin Currie, three-month period to 31 December 2020. Data shown is for the Martin Currie Global Emerging Markets representative account. MSCI Emerging Markets Index used as benchmark.

    WHAT ARE THE RISKS?

    Past performance is no guarantee of future results Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

    Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

    U.S. Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the U.S. government. The U.S. government guarantees the principal and interest payments on U.S. Treasuries when the securities are held to maturity. Unlike U.S. Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the U.S. government. Even when the U.S. government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.