Global Emerging Markets Leaders

That calm endured even when Israel took direct military action against Iran, with the oil price spiking higher only briefly. Perhaps the most interesting development from our perspective, however, was that the US dollar had its weakest start to the year since 1973¹. We think the pressure on the dollar could persist and may, in time, encourage capital to flow into emerging markets.

We added four new holdings over the quarter: two in China and two in India. Trip.com (China: Consumer Discretionary) is the country’s largest online travel-booking platform. The company’s founders remain involved in the business and have seen it grow organically as well as through mergers and acquisitions. It survived the dead stop in tourism in the covid pandemic and now seems primed to take advantage of a shift to booking travel online. While only about 10% of the Chinese population currently has a passport that proportion is expected to increase². We took advantage of the volatility at the start of the quarter to build a new position in Tencent (China: Communication Services). The reach of WeChat, a ‘super app’ that allows its users to do almost everything online, is unparalleled in China. Tencent is aligned with the state’s desire to work in partnership with private companies to reinvigorate the economy. It is also enabling China to shift computing tasks to the cloud, which is more energy-efficient than on-premises IT infrastructure.

Cholamandalam Financial Holdings (India: Financials) is an Indian financial services business rolling out general insurance across India. It is associated with the Muragappa family, who we believe to be good stewards of our clients’ capital. ICICI Lombard (India: Financials) is also an insurer. Prime Minister Modi is committed to a programme of delivering ‘insurance for all’ by 2047; we believe both companies will benefit from this drive.

We added 10 new holdings to the portfolio over the quarter and sold seven. Although it is unusual to see so many names exiting and entering the portfolio, turnover as a percentage of assets under management remained low at around 12%¹. We were, in essence, simply tidying up a number of our smaller positions – the ‘tail’ of the portfolio.

In China, we sold out of Glodon (China: Information Technology), Hangzhou Robam (China: Consumer Discretionary), WuXi Biologics (China: Health Care), Ping An Insurance (China: Financials) and Hong Kong Exchanges and Clearing (Hong Kong: Financials). The first two sales were informed by our view of China’s property market, where we don’t see the issue of oversupply being resolved any time soon. Glodon provides software for construction and development companies. The majority of Hangzhou Robam’s appliances, meanwhile, are sold to housing developers. WuXi Biologics was a small position and we couldn’t see any immediate prospect that the ongoing challenges posed by US government trade policy would be resolved. Although Ping An Insurance and Hong Kong Exchanges and Clearing had both performed well, we sold them to reallocate the capital into new investment ideas such as Alibaba (China: Consumer Discretionary), S.F. Holding (China: Industrials) and Mindray (China: Health Care).

Alibaba is one of China’s leading e-commerce platforms. It is using the strength of its balance sheet to invest in its AI capabilities. S.F. Holding has grown into one of China’s leading logistics businesses since its foundation in 1992. Its founder is still involved in the company’s day-to-day management. Mindray is a leading medical company. As trade barriers are thrown up around the world, it has the potential to benefit should there be a shift in China towards buying domestically sourced products.

Through the last quarter of 2024, markets had to contend with the re-election of Donald Trump and all the expected geopolitical noise that will come over the next four years, as well as the continuing strength of the US dollar. We remain focused on bottom-up stock picking which is at the core of our portfolio construction process and we will continue to seek out long-term growth opportunities regardless of who is the President in the White House.

We bought one new company during the quarter. We have built a position in Naver (South Korea: Communication Services), the leading South Korean internet search engine with a very strong market share. It was founded inside Samsung SDS before being spun out on its own in 1999. It is still run by the founder, Lee Hae-jin who has recently brought in a new management team which is aiming to return the company to a path of steady and profitable growth. One key aim for them is to use the stickiness of their search engine client base to drive increased e-commerce down the same channels. Their e-commerce business is the second largest in South Korea². Naver’s attractive valuation presented a good opportunity to invest in a business that should achieve double-digit earnings growth each year.

We did not fully exit any positions during the quarter but trimmed several of our Chinese holdings. These included Inovance (China: Industrials) which was becoming expensive, and Ping An Insurance (China: Financials) and Hong Kong Exchanges and Clearing (Hong Kong: Financials) which were trimmed to control larger position sizes. We build our portfolios from the bottom up and any top-down views on countries are reflected through the position size which is risk-weighted according to our conviction in each country. China has a large and deep equity market but we fully recognise that companies both in mainland China and Hong Kong are required to operate within very strict regulations set by Beijing. As a result, we typically have lower position sizes in our Chinese holdings to reflect our more cautious approach. Some of the capital raised from these trims was used to add to Samsung Electronics (South Korea: Information Technology), which we continue to believe is a stock we can own for the next decade.

Over the course of this quarter, we have sold out of two positions in China, unfortunately before the recent rally. The capital raised was mostly reallocated into other Chinese names where we had greater conviction. Estun Automation (China: Industrials) was a company we had sold on valuation concerns earlier, and when the share price fell sharply along with the rest of China, we added back into it earlier in the year. The top-down investment thesis of an ageing population needing more automation remains intact but financial risk had elevated to an extent whereby we quickly concluded it wasn’t necessarily the same business as the one we had owned previously. We allocated the funds into Inovance (China: Industrials), which operates in the same sector but with a more diversified product range. The company is looking to shift to a regional sales network to better cross sell products across their existing customer base and we feel we can access the same top-down growth driver of industrial automation but with a higher quality business. The other stock we exited in China was Kingmed Diagnostics (China: Health Care) which was a small remaining position which had already been sold down on regulatory fears.

We also sold Kotak Mahindra Bank (India: Financials). We have seen Kotak, and other banks, finding it harder to attract deposits that will allow it and the others to keep growing loans at a fair clip that warrants the valuations the bank is currently on. It used to be the case that public sector banks were so discredited that no depositor would want to risk their savings at one of these state-owned banks. But this sector has been really cleaned up, which is great for the Indian consumer but makes for a more difficult competitive environment for the private sector banks, including Kotak. With growth looking muted and residual concerns about management, we decided to sell our holding.