Emerging Markets

9 min read | The Altrinsic Emerging Markets Opportunities portfolio gained 5.6% (5.4% net) this quarter, outperforming the MSCI Emerging Markets Index's 4.0% return, as measured in US dollars. Performance throughout the period varied markedly within emerging markets. The year began with strength in North Asian (China, Taiwan, and Korea) large caps on momentum from China’s reopening. The robust start tailed off as corporate scandals and political headlines drove underperformance in the large markets of India and Brazil. Additionally, turmoil in the global banking sector following the collapse of Silicon Valley Bank (SVB) made its mark on EM equities, though in a more subdued manner.

Emerging markets are often defined by macro dynamics, but the fourth quarter was especially active on the political and policy fronts. A few key examples include: 1) China’s 20th Party Congress (and the eventual surprise unwinding of zero-COVID policies), 2) Brazil’s presidential elections (and the social unrest that followed), 3) signs of a peaking US dollar (and its effects on global currency valuations), and 4) easing inflation in the US (which could be followed by a shift in monetary policy with carry-over effects in emerging markets). Despite the unsettled circumstances, emerging market equities performed in line with developed markets.

A confluence of factors, including inflationary pressures, tightening monetary policy, weakening economic growth, and intensifying geopolitical unrest, continued to challenge emerging markets (MSCI EM -11.6%) in the third quarter. The Altrinsic Emerging Markets Opportunities portfolio declined 8.2%, outperforming the MSCI Emerging Markets Index by 3.4%, as measured in US dollars. Outperformance was derived from individual stock selection in the financials and consumer sectors, our differentiated and overweight positions in Brazil and Mexico, our underweight exposure to China, and specific stock selection in China.

Uncertainty stemming from inflationary concerns, tightening central bank policies, and prospects of slowing economic activity weighed on emerging markets.  Unlike previous drawdowns, emerging market equities fared better than broad markets (MSCI EM -11.4%, MSCI ACWI’s -15.7%).  The Altrinsic Emerging Markets Opportunities portfolio outperformed the MSCI Emerging Markets Index in the second quarter by 0.6%, as measured in US dollars.   Like most equity portfolios, ours was not immune to the market downdrafts, but we are confident in our positioning and encouraged by the investment propositions offered by a growing number of companies with strong long-term fundamentals and attractive valuations.  Key contributors to our relative outperformance included our differentiated exposure to real estate, our overweight position and select investments in India, and our underweight exposures in materials and information technology.

Thought Leadership

7 min read | We continue to view the ASEAN region as one of the best sources of investment opportunity in emerging markets, presenting a unique combination of attractive valuations, recovery potential, and sustainable long-term growth.  Within the region, and considering both short- and long-term potential, we believe Vietnam is one of the most promising investment plays, unfolding in five acts.  Alice Popescu, Portfolio Manager, has written a synopsis of the play, building a case for investors to embrace the opportunity in Vietnam.

Thought Leadership

5 min read | by Alice Popescu | I recently returned from my first post-pandemic due diligence trip to Mexico.  While virtual meeting platforms proved to be a blessing during travel lockdowns, nothing compares to the insights gained and relationships that can be developed during a quality research trip.  Travelling across three major economic zones and two time zones, I visited with 15 companies, public and private, as well as a vast array of policymakers and political observers.  Broadly speaking, the infrastructure improvements, economic environment, services industry recovery, and opportunities linked to an overarching trend of “nearshoring” were impressive.  

3 min read | At Altrinsic Global Advisors, our emerging markets equity strategy is managed with a bottom-up, fundamentals-driven approach and an objective to identify high quality, underappreciated investment opportunities across the cap spectrum, truly reflecting the DNA of the EM asset class.  Today, as we assess how our differentiated perspectives and exposures played out during the first year of our strategy, we find great alignment with our previous views (which we outlined in the September 2021 white paper report entitled Exploring the True DNA of Emerging Markets).

The Altrinsic Emerging Markets Opportunities portfolio finished the quarter virtually unchanged (+0.1%), outperforming the MSCI Emerging Market Index’s decline of 7.0%, as measured in US dollars.   Key contributors  to our relative outperformance included our differentiated exposure to energy, financials, and communications services companies, our overweight exposure in key Latin American markets including Brazil, Chile, Mexico, and South Africa, and our significant underweight exposure in Russia and China.

Thought Leadership

3 min read | Hypersonic weaponry is one of the most disruptive technologies in modern defense. We recognize that this is a controversial, sensitive, and potentially polarizing topic for multiple reasons, especially given the ongoing war in Ukraine. Yet, given the significant resources governments are committing to hypersonic research and innovation, we felt it would be valuable to provide a brief, fact-based review of hypersonic technology, its history, and the potential implications from both geopolitical and industry standpoints. Our sole intent is to provide an educational overview.

Global policy normalization was the key factor driving markets during the fourth quarter.  Responses to inflationary pressures have varied, but many emerging markets have been progressive in raising rates.  While this weighed on the relative performance of emerging market equities versus global equity markets, it may prove to be prescient.  In addition, the more proactive interest rate policies have not gone unnoticed in the currency markets, as the MSCI EM Currency Index remained near its all-time highs.