Post-Covid Investing in Emerging Markets

VIDEO: What's the outlook for emerging markets post-Covid? Andrew Ness, managing of the Templeton Emerging Markets Investment Trust, takes a look

Holly Black 23 September, 2020 | 9:58AM
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Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Andrew Ness. He's Manager of the Templeton Emerging Markets Investment Trust. Hello.

Andrew Ness: Hello. Good afternoon, Holly.

Black: So, do you want to just tell us briefly what the trust does?

Ness: Sure. So, Templeton Emerging Markets Investment Trust, to get its full title, we call it TEMIT. That's easier. It's the largest listed emerging markets investment trust in the UK We've got assets just over 2.2 billion sterling. It's also one of the oldest emerging market funds in the marketplace. We celebrated its 30th anniversary in July last year. And the purpose of TEMIT is to capture the long-term growth potential of emerging markets.

Black: So, this year has been a bit of a crazy one for emerging markets. On the one hand, you've got China, which was first in and first out of lockdown in this and is now soaring. But you have countries like Brazil really still struggling to get to grips with the Covid pandemic. How are you handling that within the trust?

Ness: Funny thing is you mentioned China's performance. So, China, the source of the crisis, has held up much better than many other parts of the world. It's certainly escaped the worst of the selling throughout March. And if we look year-to-date, it's comfortably outperforming most of the other emerging markets. I think one of the reasons why China was able to do that was it was able to flatten the infection curve much quicker. And if you cast your mind back, Holly, to at the time at the start of the year, what was going on in China, I think all of us were looking at the measures being undertaken by authorities and thinking, you know, that looks pretty drastic and draconian. But with hindsight, it now very much becomes the standard playbook in how you should address and tackle the virus. And the problem that we're seeing in other countries, both developing and developed, is that there's less ability by the policymakers to impose strict lockdowns that were so successful in the likes of China and other parts of North Asia.

Black: So, coronavirus aside, what are some of the main themes in the portfolio at the moment?

Ness: Yeah, and I think like yourself no doubt you're having conversations how Covid will change the world, but I think our expectation is that a lot will probably be less different than people expect. You put into our emerging markets strategy, we still think many of the themes that we've been investing in for some time now, they'll remain very relevant in the post-Covid world and I think some of them will indeed be accelerated as a direct result of the pandemic. So, if you take technology as an example, it's been a big theme in TEMIT over recent years and it remains so today. It's very much enabling the reshaping of the global economy.

And if you look at our strategy, if you look at TEMIT today, it gives you all those trends and all those exposures, but they're emerging markets equivalent. Now, whether that's true our ecommerce investments in the likes of China and Korea and Russia and Taiwan, so food delivery exposure in a wide range of markets, we've got exposure to China's leading video streaming and music platforms – effectively they are equivalent of Netflix and Spotify, and also the country's equivalent of Zoom. And that's connecting friends, families and colleagues in very much the same way that we are connecting here today. Elsewhere, we continue to have significant exposure to the emerging market consumer. I think that remains a multiyear growth opportunity for investors and there's two ways we can play that.

TEMIT has got exposure to both the under-penetration of a wide range of goods and services that can – credit cards in Peru to personal care products in India to give a couple of examples. But also, we've got the exposure to the upgrading or the premiumisation of consumption where emerging market consumers have emerged very much in countries like China and Korea, Russia and Brazil. And these consumers, they are keen to upgrade the quality of the goods and services that they consume as the wealth levels have risen.

And then, finally, the last thing I'll mention is one of stewardship. We are very much active investors. We engage with our investee companies. We're looking to improve returns for our clients and also seek better outcomes for our other stakeholders. And what we're seeing in emerging markets over recent years is a significant improvement in corporate governance across a wide range of emerging economies. We're seeing improved capital discipline, better reporting, a greater alignment with minority investors. And all of that ultimately leads, we think, to a potential re-rating of many markets, and we don't think that those trends are going to be negatively impacted by Covid, especially.

Black: Andrew, thank you so much for your time. For Morningstar, I'm Holly Black.

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Holly Black  is Senior Editor,


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