Global Emerging Markets (ex China) Leaders

The uncertainty drove share prices sharply lower until the announcement of a 90-day pause on the introduction of the tariffs helped to calm investors. 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.

Towards the end of the quarter, we attended a conference at which we met a number of Indian companies. We were struck by how positive all of them were about the growth opportunities in front of them over the next 10 years. In our view, this potential growth continues to offer powerful support to valuations in the Indian market. We added to our existing holding in Bajaj Auto (India: Consumer Discretionary), the world’s largest manufacturer of three-wheeled vehicles, which provide an affordable form of transport. The company is also well placed to play a leading role in India’s growing adoption of electric two- and three-wheeled vehicles.

Although our outlook on emerging markets is positive, we have become increasingly concerned about the outlook for companies dependent on capital investment in IT systems and services. Although we can see the need for many clients to reach out for their help with incorporating artificial intelligence (AI) tools, it may be that AI actually replaces IT services in some areas. In view of the risk that postpone or cancel investments in their IT systems, we pared back our positions in Delta Electronics (Taiwan: Information Technology), Advantech (Taiwan: Information Technology), and AirTAC International (Taiwan: Industrials).

Looking ahead, any renewed weakness in the dollar could be the trigger for capital currently domiciled in the US to begin to flow into emerging markets. We continue to see particularly good growth opportunities in India, where the central bank recently started cutting interest rates, and a gradually recovering picture across Asia more broadly. We are currently planning a trip to South Korea, where we hope to improve our understanding of the improvements to corporate governance taking place under the new government. We also hope to gain insight into the progress being made by Samsung Electronics (South Korea: Information Technology). It had a difficult 2024 but we believe it could be turning a corner in terms of its growth outlook. 

In India, we allocated capital to some new ideas which have been on our focus list for a while but whose valuations meant we were unable to act until now. Info Edge (India: Communication Services) is a technology company whose online jobs portal caters to 132,000 corporate customers and hosts around 100 million CVs¹. It also has property, matchmaking and educational portals. Tube Investments (India: Consumer Discretionary) is an industrial conglomerate whose share price had fallen sharply, providing us with what we believe is an excellent entry point. Bajaj Auto (India: Consumer Discretionary) had also sold off allowing us to add this leading manufacturer of motorcycles, scooters and auto rickshaws, which is backed by a high-quality steward. Bajaj Holdings & Investment (India: Financials) is the holding company of siblings Rajiv and Sanjiv Bajaj. They have demonstrated an exemplary track record of delivering returns for shareholders in autos and financial services.

Elsewhere, we built positions in Samsung Biologics (South Korea: Health Care), Alfamart (Indonesia: Consumer Staples), and BDO Unibank (Philippines: Financials). We believe Samsung Biologics can use the strength of its parent company’s balance sheet to add capacity more quickly than its competitors and win market share. Alfamart is the second biggest player in Indonesia’s convenience-store sector². It plans to roll out new stores across the country over the next decade. Its shares sold off as the market took fright at Indonesia’s new government but we can see a clear and dependable growth path before it. Finally, BDO Unibank is the Philippines’ largest lender³. It is backed the Sy family, who we believe are great long-term stewards.

We made one complete sell during the quarter, Dino Polska (Poland: Consumer Staples), which had performed well but had become too expensive given its long-term growth prospects.

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 trimmed several companies in India through the quarter. These included Marico (India: Consumer Staples) and Godrej Consumer Products (India: Consumer Staples) which we believe are now slightly too expensive for our growth expectations in the coming years. We also trimmed our holding in Mahindra & Mahindra (India: Consumer Discretionary) to control risk from the large position size.