Templeton Emerging Markets Investment Trust: Navigating The World’s Fastest Growing Economies Amid Market Volatility

Templeton Emerging Markets Investment Trust: Navigating The World’s Fastest Growing Economies Amid Market Volatility

• TEMIT portfolio managers Chetan Sehgal and Andrew Ness discuss the new realities, challenges and outlook for emerging markets

London, 20 June 2022: Templeton Emerging Markets Investment Trust (TEMIT¹), the largest investment trust investing in the world’s fastest growing economies, recently hosted a roundtable to discuss how it is navigating emerging markets (EM) amid ongoing volatility. Chetan Sehgal, lead portfolio manager and Andrew Ness, portfolio manager, highlighted why emerging markets can be an attractive allocation to investment portfolios today, particularly as inflation soars in the UK.

New realities of the emerging markets landscape

Andrew Ness, portfolio manager at TEMIT, says: “In our view there are three new realities for the EM landscape. EM institutions have made policy improvements that have ultimately contributed to them becoming a more resilient asset class. This has been validated through the last few crises including Covid-19 and the Global Financial Crisis.

“The second new reality is that EM economies have diversified, and the opportunity set has subsequently changed significantly. We’ve seen a transformation away from commodity driven economies to economic growth drivers that are much broader, like domestic consumption, technology and innovation. This is catalysing change, providing secular growth drivers and bringing an additional resilience to these economies.

“Lastly, EM companies have been leapfrogging established business models through innovation. Emerging markets have gone from being the followers to global leaders in deploying and advancing technology. There is an underappreciation from investors for the industry leadership that exists within emerging market businesses. There are high-quality opportunities available with companies that offer more resilience because they are typically more profitable and have less cyclical business models. When the inevitable bumps in the road happen, these companies are better prepared.”

Challenges in emerging markets

Chetan Sehgal, lead portfolio manager at TEMIT, said: “The fact that vaccines worked and provided protection when Covid-19 spread demonstrated that science and technology are on the right path. Global coordination to implement a vaccination programme and ongoing cooperation amongst countries played an enormous role in the recovery.

“More challenges have emerged however, including Russia’s invasion of Ukraine, China’s zero-Covid policy, rising interest rates, as well as climate change and who is going to bear the cost of climate transition. We consider the impact of these four factors on the companies we invest in as part of our portfolio construction.

“The war in Ukraine means the world is now living with higher commodity and energy prices and trade continues to be impacted. Similarly, China’s zero-Covid policy has had a significant effect on global supply chains. On interest rates, these are no longer globally coordinated and on climate change, whilst there are some global commitments, countries have different timelines.

“We therefore focus on how the companies we invest in navigate these situations as well as structural trends. We are closely following how semiconductors are becoming increasingly dominant and more than 25% of our portfolio is orientated towards this sector. Despite the global slowdown taking place, semiconductor companies are still upbeat, and their earnings power remains strong.”

Outlook for emerging markets

Andrew Ness, portfolio manager at TEMIT, says: “Whilst we are in a period of strong inflation and growth headwinds, we do not view inflation as a long-term factor and expect it to decline from current highs over the medium term. In this period, we are looking for companies providing significant near-term cash returns to shareholders, pricing power or superior margins, or a long growth runway.

“We expect geopolitical issues to keep material and energy prices higher for longer despite global slowdowns. Due to this, we have added to global cost leaders in commodities with high cash flows and strong shareholder return policies.

“The global chip shortage and struggle to secure semiconductor supplies has spurred a significant increase in pricing as well as increased capital expenditures in those sectors. We therefore remain overweight in semiconductor stocks that have sustainable cost and technology advantages, with favourable competitive positions. Near-term demand could be a source of negative surprise, but semiconductor use is becoming pervasive.

Chetan Sehgal, lead portfolio manager at TEMIT, concluded: “Emerging market economies generate 65%², of global growth and are home to some of the world’s most innovative and exciting corporations harnessing technology. We expect renewable energy and electric vehicle batteries for example to see an acceleration in adoption and have added more exposure to these secular growth themes.  

“China remains an exception in the Covid-19 recovery. Lockdowns in China are set to continue to disrupt global supply chains. The Chinese internet sector has seen growth expectations come off dramatically and most companies are now restructuring plays.

“The Middle East, Brazil and Indonesia have all been beneficiaries of the surge in commodity prices. We have therefore taken some profit in Brazil and Indonesia.”

-ENDS-

Contacts:

Saira Khan Franklin Templeton, Cannon Place, 78 Cannon Street, London, EC4N 6HL, Tel: 0207 073 8644 Email: s[email protected]

Kathryn Cleaver / Olivia Nelson Teamspirit Tel: +44 7384 907518 / +44 07392 106925 Email: [email protected]

1. TEMIT is a closed-end investment trust with approximately £2.06 billion of assets under management (as of May 31, 2022) managed by Franklin Templeton. It is listed on the London Stock Exchange (TEM).  The price of shares in TEMIT and income from them can go down as well as up and you may not get back the full amount that you invested. Past performance is not an indicator, nor a guarantee of future performance. Currency fluctuations will affect the value of overseas investments. When investing in a fund denominated in a currency other than sterling, performance may also be affected by currency fluctuations. In emerging markets, the risks can be greater than in developed markets. Please consult your professional adviser before deciding to invest.

2. Source: IMF WEO, October 2021.

This press release is intended to be of general interest only, and does not constitute professional advice. Franklin Templeton and its management groups have exercised professional care and diligence in the collection and processing of the information in this press release. Franklin Templeton makes no representations or warranties with respect to the accuracy of this document. Franklin Templeton shall not be liable to any user of this report or to any other person or entity for the inaccuracy of information contained in this press release or for any errors or omissions in its contents, regardless of the cause of such inaccuracy, error or omission.

Any research and analysis contained in this document has been procured by Franklin Templeton for its own purposes.

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For more information on TEMIT please visit our website www.temit.co.uk.

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