Emerging Markets have been rocked by the Ukraine conflict, and early suggestions China could be dragged into the crisis with reports Russia requested military aid from China, there will be concerns EM equities face further downside.
This downside may provide an opportunity for investors seeking a long term hold in emerging markets and prepared to accept a higher level of volatility than developed market options.
If you are seeking a diverse fund portfolio with a reasonable yield, you could consider ASI Emerging Markets Income Equity.
The £889 million fund aims to generate income and a moderate amount of growth over a long-term period in excess of five years, by investing in emerging markets equities. The fund currently yields 2.15%.
ASI Emerging Markets Income also boasts a cumulative performance which has remained consistently ahead of the IA Global Emerging Markets benchmark for the past four years since January 2018. ASI Emerging Markets Income has returned 30.6% over the past 5 years, compared to 18% for the benchmark.
The opportunity comes from a 15% decline over the past year after a sharp EM sell off due to the Russia conflict and weakness in Chinese tech stocks.
The fund is predominantly invested in Asian equities, with 18.3% based in China, 17.3% based in Hong Kong, 15.5% in Taiwanese equities and 15.4% based in South Korea.
The current market impact of China’s Covid-19 lockdown in Shenzhen may have provided an ideal time to buy into Chinese investments, with the dip providing an attractive opportunity to take advantage of China’s longer-term growth story.
In addition, a number of portfolio companies have faced more targeted selling as a result of money laundering fines and concerns around the delisting of US-listed Chinese tech shares.
Tencent shares have sunk on reports of a possible money laundering fine with the selling spreading through other US-listed Chinese stocks such as Alibaba, another ASI Emerging Markets Income portfolio company.
The top holdings in the fund include Samsung Electronic with 8.6%, Taiwan Semiconductor Manufacturing at 7.4% and Tencent contributing 4.1%. Alibaba accounts for 2.9% of the fund.
Samsung reported a dividend yield of 2% over the last year providing some reliability to the funds’ income attributes.
Taiwan Semiconductor Manufacturing has seen increased year-on-year sales of $319.1 billion in the first two months of 2022, up 36.8% compared to the same time frame in 2021. Taiwan Semiconductor has a dividend yield of 1.5%.
There should be a note of caution around the funds Russian holdings which account for 2.7% of the fund at a time the writing. The Moscow Exchange has remained shut since the beginning of the conflict so the valuation of their Russian holdings, which includes sanctioned Sberbank, are difficult to determine and could face severe losses.
ASI Emerging Markets Income will be worth a consideration once there is more visibility on the impact of their Russian holdings and the dust has settled around Chinese stocks.
