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China: Buy or sell?
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Change creates chance
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Emerging markets have suffered a prolonged period of underperformance relative to developed ones but could a change in market leadership be in the offing? Despite near-term headwinds, emerging markets could be set for lift-off as investors seek to profit from long-term growth opportunities trading at deep discounts.
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Emerging markets have a lot going for them – ultra cheap valuations, structural tailwinds and central banks that are superbly addressing inflation. At Citywire’s sixth Due Diligence Report virtual event of 2022, four experts explain why now is an opportune time to invest, and outline the countries and themes they are hot on.
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CONTENT BY
We explore our extensive buy list data to reveal the favourite ESG funds among selectors
Justin Leverenz, CFA
Team Leader and Senior Portfolio Manager, Invesco Emerging Markets Equity Team
1. Source: Bloomberg, 12/2021. 2. Source: FactSet. 3 .Source: Moody’s, Barclays Research, 12/2021. 4. Source: Bloomberg. 5. Source: Bloomberg, Morningstar. 6. Source: Bloomberg, 12/2021.
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Emerging market equities have had a challenging year-to-date performance, tracking closely disappointing returns of developed markets, including US equities, this year. But looking at the longer term, the Invesco Emerging Markets Equities team believes many emerging market companies are embarking on a new era — cutting back on oversized ambitions and focusing on opportunities that are profitable and cash generative. We expect to see watershed changes in terms of earnings and returns in these businesses as they become more rational and disciplined. Of course, we’re also facing a very difficult economic environment across the globe, with growing risks of recession. We’re closely looking at what companies we would like to own and determining where we believe the price is fair, being mindful of a potential retreat in stock prices as the world faces immediate challenges. With all this in mind, we would like to address some frequently asked questions we are getting from investors about emerging market opportunities and risks today. What are the positives you see in emerging markets? From a relative perspective, we are encouraged by three important areas. • Valuations. Broadly speaking, after a really difficult decade, emerging market equities are very cheap relative to US equities, whether we are looking at earnings, cash flow, or book value.¹ • Central banks. Most emerging market central banks have already acted to defend their currencies by raising interest rates to deal with inflationary pressures. Rates have increased dramatically in Brazil, Mexico, Eastern Europe, South Africa, and all across the developing world. While the Federal Reserve, the European Central Bank, and the Bank of Japan have talked about trying to restrain inflation and deal with overheated economies, the developing world has already worked through that pain. In fact, emerging markets central banks are not just ahead of the curve, but may be in a position to reduce rates, which should have a major impact across these economies. • China. Critically, we believe China is at a nadir in its economic cycle. China’s zero-COVID policy has had a hugely debilitating impact and its economy is incredibly weak right now. But we think over the next year or so, we will see a role reversal in the two largest economies in the world. The United States is clearly overheating, and the policy response to that is expected to have an adverse effect from a monetary and fiscal perspective. We are likely going to see the exact opposite in China. It is already selectively easing in terms of fiscal, credit, property, reserve rate requirements, and other monetary policies. We believe that 12 months from now, China will be in economic recovery mode and that should lead to improvements in corporate earnings — all against a background of cheap asset prices. There’s a lot of concern from investors right now — how would you put today’s risks into perspective? We live in a world of enormous anxieties — geopolitics, inflation, the potential for a global recession. In our view, investors tend to overestimate the risks that they can see, but we believe the greatest risks are the uncertain risks that are not well acknowledged. For example, many investors are worried about the negative impact that China's zero-COVID policy and technology regulations are having on economic growth. We have visible evidence that China’s growth struggles are reducing demand for 5G smartphones. In response, investors have sold off semiconductor design companies to the point where the stocks of good companies appear relatively cheap. But we don’t believe investors have connected the dots to other areas. Just as consumers hoarded toilet paper at the beginning of the pandemic, automobile companies and other manufacturers have hoarded semiconductors by over-ordering supply. That can have an impact on demand and in turn on foundries and the capital equipment behind the foundry. What we have been doing over the last couple of months involved finding and investing in opportunities where the visible risks are well understood, have been deeply digested, and have led to discounts in prices — and looking out for circumstances where the risks have not yet been widely perceived. You’ve mentioned China’s struggles with zero-COVID policy. Can you elaborate on what you expect from policymakers going forward? There is uncharacteristic controversy emerging in China. While nobody really has insight into how policy is navigated at the highest level, it does seem to me that there are all kinds of alternative voices within the senior leadership of the party as it relates to the balance between preservation of the economy and trying to restrain the worst consequences of COVID. I do think, from a policy perspective, that China is going to have to find some way of living with the virus and ultimately not be in a bubble compared to the rest of the world. I expect that will likely be nonlinear and there will be fits and starts. But in general, we have seen evidence in important geographies like Shanghai and Beijing that policymakers seem to have gone from the extremes of zero-COVID to some sort of relaxation. We will see how that evolves. I think that's one very important thread in terms of confidence for investors. In terms of policy noise outside of COVID, we’ve seen action in terms of improving liquidity, dropping rates, and committing to fiscal expansion at many different levels in China. I do believe that China is not an economy that's going to persist in being a zero or low-growth economy. What’s your view of commodities and the recent volatility in the asset class? Commodities by definition are always volatile, because prices are determined by the intersection between excess supply and demand. That said, we believe that as long as the world is committed to a decarbonization agenda, "The Great Energy Transition" as it's called, this raises the prospect of potentially structurally higher resource prices. That is for two key reasons: • Hydrocarbon companies, broadly speaking, have little incentive for greenfield expansion in an environment where they know 20 or 30 years from now, the demand environment is going to be entirely different, shaped by environmental, social, and governance (ESG) considerations. A lack of investment would, over time, contribute to a higher hydrocarbon price environment. • More importantly, decarbonization on a large scale would require enormous investment capital to expand solar and wind farms, transition toward electric vehicles, and adapt the power grid accordingly. In addition to being incredibly capital intensive, these projects would be very mineral intensive for resources like nickel, copper, and cobalt. And these resources are largely located in geographies that come with challenges for producers. For example, Chile represents 30%² of the world's copper production, and the country just elected a leader who’s advocated for significant increases in the royalty rates and taxation of the mining industry, which we expect would make it almost impossible for the industry to want to commit more capital to mining projects there. Central Africa also has unique challenges associated with political turmoil. The massive increase in commodity prices we have seen over the last couple of months has little to do with these longer-term structural issues and more to do with the challenges associated with replacing Russian imports with resources from different geographies, and Russia finding the ability to reposition its resources into other markets. But broadly speaking, we believe resources, hard commodities, and energy structurally are going to be influenced by these structural forces. That being said, we spend a lot of time looking at companies and determining what price we would want to pay for them. It is our view that in the next six to 12 months, there is a strong probability that the world could move into a significant recession. We are looking at what we want to own and determining where we believe the price is fair, while being mindful of a potential retreat in stock prices because the world is looking challenging in the short term. What are some of the areas that you're most excited about for the future? We have been in a very volatile climate for the last couple of years. Long-duration assets were everything in 2020 — by that we mean either young, less mature companies or growth-oriented companies. But with a few rare exceptions, these types of companies have sold off dramatically across the developing world over the past year. But within that indiscriminate sell off, there are clearly companies that, in our view, represent great opportunities over the next three, four, five years. In the developing world, we think we are now in the environment where boards, entrepreneurs, and shareholders have shifted the focus. Instead of preparing PowerPoint presentations showing off enormously ambitious market opportunities that require significant investments and involve great uncertainty about the profitability of those opportunities — we find that companies are increasingly restraining their ambitions and focusing on opportunities that are profitable and cash generative. As they peel back the investments and focus on the core and profitable near-term opportunities, we expect to see watershed changes in terms of the earnings and returns in these businesses as they become more rational and disciplined. We think the most advanced emerging market in this regard is China. And looking ahead to a post-zero COVID China, where the economy goes back to potential growth of 4% or 5%, we expect these companies to strike the interest of investors again. We also anticipate in a year to 18 months later, we’ll see the same sort of behavior beginning to emerge in company boards in places like Brazil, Indonesia, and Russia, where there's recognition that profitable opportunities may be very different than the aspirational ones, and that the competitive landscape needs to consolidate in order to reach profitability in nascent industries like e-commerce, FinTech, and other parts of the new economy. What’s an example of an industry with particularly exciting opportunities, in your view? We believe EM financials offer a distinct opportunity for investors. In our view, there is clearly structural growth potential in underpenetrated credit, investment, insurance, and savings markets across the EM landscape. However, not all financial service markets are equally attractive in the developing world. Broadly speaking, the more developed EM economies of Northeast Asia (Taiwan, South Korea), the Middle East and Eastern Europe have mature financial service penetration, which acts as a constraint on structural growth. And these geographies also have highly developed and competitive market topologies (banks and capital markets) which cap returns. These markets also generally have structurally low rates ala the developed economies of Europe, North America, and Japan. This contrasts with attractive opportunities for growth and high through-the-cycle return potential in less developed financial service markets in Latin America, Southeast Asia, India, and certain markets in Africa. 1 Sources: Bloomberg, L.P., and FactSet Research Systems 2 Source: Wood Mackenzie, 2021
About the author Justin Leverenz is a Team Leader and Senior Portfolio Manager for the Invesco Emerging Markets Equities team. Mr. Leverenz joined Invesco when the firm combined with OppenheimerFunds in 2019. He joined OppenheimerFunds in 2004 as a senior research analyst. Prior to joining OppenheimerFunds, Mr. Leverenz was the director of Pan-Asian technology research for Goldman Sachs in Asia, where he covered technology companies throughout the region. He also served as head of equity research in Taiwan for Barclays de Zoete Wedd (now Credit Suisse) and as a portfolio manager for Martin Currie Investment Managers in Scotland. He is fluent in Mandarin Chinese and worked for over 10 years in the greater China region. Mr. Leverenz earned a BA degree in Chinese studies and political economy and an MA in international economics from the University of California. He is a Chartered Financial Analyst® (CFA) charterholder.
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Emerging markets have faced a fresh set of shocks but there are still pockets of opportunity, writes Bailey McCann
Change creates
The start of this year saw emerging markets show signs of life – many countries had made it through the bulk of the pandemic and have started to reopen, but war, inflation and a fresh Covid-19 surge in China brought about new headwinds. And yet now, as the market shows more clarity on the macro environment, new pockets of opportunity start to emerge. Cyclical trends Many long-term cyclical trends that supported growth in emerging markets before the pandemic still exist. The middle classes in emerging markets are still broadly expanding, even if they are under more pressure from inflation than before. Technology companies have taken on bigger roles as workers pivot to a remote environment and consumers move more of their shopping online. For Kevin Carter, founder and chief investment officer of EMQQ, the fundamentals remain strong despite the stocks having taken a beating in recent weeks.
“There were questions about what was going to happen next. But for technology companies, consumer demand is still there”
Kevin Carter Founder and chief investment officer of EMQQ
chance
Cyclical trends Many long-term cyclical trends that supported growth in emerging markets before the pandemic still exist. The middle classes in emerging markets are still broadly expanding, even if they are under more pressure from inflation than before. Technology companies have taken on bigger roles as workers pivot to a remote environment and consumers move more of their shopping online. For Kevin Carter, founder and chief investment officer of EMQQ, the fundamentals remain strong despite the stocks having taken a beating in recent weeks.
‘We’ve had a lot of shocks lately,’ he says. ‘When you look at the trend, what we’ve seen is a broad sell-off because there were questions about what was going to happen next. But for technology companies, consumer demand is still there, growth is still there.’ Many of the companies in his EMQQ Emerging Markets Internet and Ecommerce ETF have significant exposure to China, which has been under a strict lockdown for several weeks. The move forced these companies to return to a pandemic footing they hadn’t been on since early 2020. Although that has served to dampen growth, Carter reckons they remain on an upward trajectory. He says: ‘China’s internet giants are going to have slower growth going forward – a combination of what’s going on right now with the pandemic and just the law of large numbers. That said, they will still have growth – it’s not the end.’ Reversion to the mean Alongside the cyclical growth trends driving technology companies, there is also a growing sense among fund managers that emerging markets in general are poised for a rebound. ‘There’s an idea out there that these markets have gone through a prolonged period of underperformance and so folks are looking for a reversion to the mean,’ says Nick Kalivas, head of factor and core ETF strategy at Invesco. ‘When you look at countries outside of China or Russia, the rebound in growth is pretty strong. Seeing that data point alongside a lot of very discounted stocks can create an interesting opportunity set for investors.’ Many emerging markets beyond China and Russia have shown resilience in recent months. Companies have taken a hit from inflation and ongoing supply chain issues, but consumers are still making purchases. And there are indicators of growth. Kalivas argues that using a low volatility factor exposure can help investors screen for those growth opportunities while limiting risk. Companies that exhibit low volatility tend to be more mature, as well as having stronger balance sheets and more predictable earnings. The Invesco S&P Emerging Markets Low Volatility ETF invests across sectors and geographies – something that gives it diversification. ‘The benefit of an approach like this is that you’re getting broad exposure but doing it in a systematic way which can help navigate some of the uncertainty in the market right now,’ says Kalivas. Net exporters There are also regional opportunities. Latin American countries have done well as energy and food prices rocketed elsewhere, given that the region is home to many exporters of energy and key food commodities. ‘Looking at emerging markets in blocs and identifying those areas that are net exporters – like the LatAm countries – can be one way to find opportunities, or at least identify differentiation,’ says Wei Li, global chief investment strategist at BlackRock. She points to local currency debt as another key area of growth because emerging market central banks acted sooner than developed market ones in raising interest rates. The overall result for Li is a neutral outlook for the second half of this year with the potential for a tilt to the upside. ‘When we look at the picture going forward, there are some positive growth trends happening. But the definitive factors are going to be whether China starts to reopen – which would take some pressure off of emerging markets – and whether inflation starts to come down. If both of those things happen, that will be very supportive for emerging markets.’
“When we look at the picture going forward, there are some positive growth trends happening”
Wei LI Global chief investment strategist at BlackRock
‘Rate increases not only happened sooner but the path is also clearer, so emerging market central bank activity is priced in,’ says Li. ‘That gives us higher yields and a bit of a cushion while other sources of volatility work themselves out.’ The cushion that local currency fixed income provides is helping to balance out the pressures faced within emerging market equities as companies respond to higher inflation and continued tensions in Russia and China.
‘We’ve had a lot of shocks lately,’ he says. ‘When you look at the trend, what we’ve seen is a broad sell-off because there were questions about what was going to happen next. But for technology companies, consumer demand is still there, growth is still there.’ Many of the companies in his EMQQ Emerging Markets Internet and Ecommerce ETF have significant exposure to China, which has been under a strict lockdown for several weeks. The move forced these companies to return to a pandemic footing they hadn’t been on since early 2020. Although that has served to dampen growth, Carter reckons they remain on an upward trajectory. He says: ‘China’s internet giants are going to have slower growth going forward – a combination of what’s going on right now with the pandemic and just the law of large numbers. That said, they will still have growth – it’s not the end.’ Reversion to the mean Alongside the cyclical growth trends driving technology companies, there is also a growing sense among fund managers that emerging markets in general are poised for a rebound. ‘There’s an idea out there that these markets have gone through a prolonged period of underperformance and so folks are looking for a reversion to the mean,’ says Nick Kalivas, head of factor and core ETF strategy at Invesco. ‘When you look at countries outside of China or Russia, the rebound in growth is pretty strong. Seeing that data point alongside a lot of very discounted stocks can create an interesting opportunity set for investors.’ Many emerging markets beyond China and Russia have shown resilience in recent months. Companies have taken a hit from inflation and ongoing supply chain issues, but consumers are still making purchases. And there are indicators of growth. Kalivas argues that using a low volatility factor exposure can help investors screen for those growth opportunities while limiting risk. Companies that exhibit low volatility tend to be more mature, as well as having stronger balance sheets and more predictable earnings. The Invesco S&P Emerging Markets Low Volatility ETF invests across sectors and geographies – something that gives it diversification. ‘The benefit of an approach like this is that you’re getting broad exposure but doing it in a systematic way which can help navigate some of the uncertainty in the market right now,’ says Kalivas. Net exporters There are also regional opportunities. Latin American countries have done well as energy and food prices rocketed elsewhere, given that the region is home to many exporters of energy and key food commodities. ‘Looking at emerging markets in blocs and identifying those areas that are net exporters – like the LatAm countries – can be one way to find opportunities, or at least identify differentiation,’ says Wei Li, global chief investment strategist at BlackRock. She points to local currency debt as another key area of growth because emerging market central banks acted sooner than developed market ones in raising interest rates. ‘Rate increases not only happened sooner but the path is also clearer, so emerging market central bank activity is priced in,’ says Li. ‘That gives us higher yields and a bit of a cushion while other sources of volatility work themselves out.’ The cushion that local currency fixed income provides is helping to balance out the pressures faced within emerging market equities as companies respond to higher inflation and continued tensions in Russia and China. The overall result for Li is a neutral outlook for the second half of this year with the potential for a tilt to the upside. ‘When we look at the picture going forward, there are some positive growth trends happening. But the definitive factors are going to be whether China starts to reopen – which would take some pressure off of emerging markets – and whether inflation starts to come down. If both of those things happen, that will be very supportive for emerging markets.’
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Nash Waterman
Head of AIP Private Markets Secondaries, Morgan Stanley Investment Management
Introduction The GP-led secondary market has witnessed a brisk pace of growth in the past two decades with a flurry of transactions in recent years. In 2021, GP-led secondaries represented 51% of the $135bn overall secondaries market, a record year in deal volume.¹ Forecasts suggest another banner year in 2022, with deal volume expected to rise as much as 20% year on year.² In this Q&A, Nash Waterman, portfolio manager and head of private markets secondaries, discusses the growing opportunity set for General Partner (GP) led deals, spelling out why we believe the sector and the single-asset segment, in particular, are attracting growing investor interest. Where did GP-led secondaries start? In the early 2000s, financial groups needed to spin out of banks and GP-led secondaries became an efficient way to lift out these assets and teams. From there, the market evolved quickly, as the suitability of GP-led deals for use in other situations became apparent. Today, single-asset transactions are the fastest growing area of the secondaries segment. The deals are gaining favor, as they provide existing GPs the ability to double down on their best portfolio assets or for Limited Partners (LP) to take liquidity, while opening up access to outside investors without the need for highly competitive bidding processes. When did you notice a divergence from the LP-led secondaries market? In the early 2010s, GP-led secondaries experienced exponential growth driven by post-crisis fund restructurings. With the deals evolving into highly bespoke solutions, we became skilled in the more customized and surgical approach these type of transactions require. We began structuring deals to lift out the specific assets that we found to be the most compelling. Unlike traditional LP-led or multi-asset GP-led deals, where secondaries investments involve exposure to multiple assets at the portfolio level, this new approach allowed us to mitigate unwanted broader portfolio risk. Today, the single-asset model now stands as a functionally distinct segment of the secondaries market. Oftentimes, single-asset deals can unlock potential value that would otherwise be sacrificed due to a lack of funds or premature exit, which is a key reason we coined the term 'transformational secondaries' back before a standard nomenclature existed for these transactions. Why are GP-led secondaries so attractive to investors? In our view, the sector offers the best access to top-quality assets in the middle market. Consider, too, that within private equity the penetration of secondaries activity is relatively low. In practice, this has tilted purchasing power toward buyers as primary deal activity has outstripped secondaries demand, creating a growing universe of investable assets. As a result, managers can be highly selective and intentional about adding positions. Relative to other segments of the secondaries market, single-asset deals stand out for their return potential. According to recent research, nearly 62% of secondaries investors are targeting net IRRs of 20% or more in the single-asset segment. In comparison, return thresholds for the multi-asset GP and LP-led segments are much lower, with only 40% and 16% of investors targeting returns as high as 20% or more, respectively. How does an allocation typically fit into an investor’s portfolio? In our experience, investors typically see these deals fitting in a few different ways. First, they view single-asset secondaries as a definitive alpha source within private equity. They see the value of the prize assets being sold, which, when combined with their shorter duration and lower volatility characteristics, make for highly compelling investments. Second, to the extent that assets are sold out of portfolios into continuation funds, allocating to a focused single-asset secondaries fund can capture value that an investor might otherwise have lost as a result of the gap in their existing portfolio. More generally, we feel the divergence that we’ve highlighted between LP and GP-led deals should be reflected in investors’ planning as distinct segments. The two segments exhibit different risk and return characteristics, and the fact that the GP-led market is now larger than the traditional LP-led segment suggests that a dedicated allocation to the sector warrants consideration. These are complex investments. What skills are involved? As with other differences discussed above, investment skillset is an area where LP and GP-led single-asset deals starkly diverge. The intricacies involved in sourcing, due diligence and executing on single-asset deals explain precisely why investors can earn a complexity premium in the space. Our dedicated sourcing group has focused on building relationships, resulting in our most recent portfolio consisting of all exclusively sourced or proprietary transactions. We have been building a team since the advent of this market and transacted on 50 deals in this space. From our perspective, this experience enables us to drive negotiations and become a preferred buyer for GPs. In summary, the resource-intensive nature of this space creates barriers to entry that preclude 'investor tourism'. Without a dedicated and expert team experienced in single-asset deal craft, investors will likely find success very difficult to achieve.
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Investors have come alive to the opportunity in emerging markets equities. Dedicated emerging markets equity funds tracked by EPFR attracted a net $71.1bn in the first five months of 2022 – which looks bountiful relative to the $134bn attracted throughout 2021. Half of this year’s net inflows have gone into China, Greater China and Hong Kong equity funds, with diversified global emerging markets funds accounting for much of the balance. ‘Despite the risks posed by an indebted property sector and the economic consequences of the stop-start dynamic caused by China’s zero-Covid policies, investors believe fiscal and monetary policy will be highly supportive during a year that concludes with the ruling Communist Party’s 20th Congress,’ says Cameron Brandt, director of research at EPFR in Cambridge, Massachusetts. Several other themes are attracting money. Taiwan and Korea equity funds are benefiting from their semiconductor stories, Vietnam and Mexico funds from anticipated supply chain relocation, and Saudi Arabia funds from the search for energy alternatives to Russia. We spoke to five investors of varying mindsets – from those who are allocating just a sliver of portfolios to emerging markets to one who has more than a third of the pie apportioned to these markets. Envestnet PMC’s Moderate Growth model has a 5% allocation to emerging markets – a 50 basis point overweight on a 4.5% strategic weight. ‘We approach emerging markets exposure with cautious optimism,’ says Tim Murphy, senior portfolio manager based in Boston, Massachusetts. ‘Steep losses in 2022 have served as a reminder of many of the heightened risks and the cast-iron stomach that’s essential for emerging markets investing. ‘However, the potential for emerging markets remains strong with valuation and growth as leading catalysts. Exposure can add significant value to portfolios when these opportunities are unlocked, rewarding investors who have accepted the additional risk.’ Economic growth is set to outpace advanced economies in 2022 and widen the gap in 2023. China and India are both expected to grow by more than 5% in 2023 – more than double the 2.3% pencilled in for the US and the eurozone. Demographics, with their large and growing consumer base, and the valuation discount relative to developed markets – which is more than double the average of the last 20 years – also favor emerging markets. ‘When emerging markets get hot, performance is often scorching, as seen in the 2000s decade,’ adds Murphy. Touchstone Investments deems a reasonable allocation for a balanced investor to be 7% – underweight relative to its strategic position of 9%. ‘We want to be patient,’ says Richard ‘Crit’ Thomas, the company’s global market strategist in Cincinnati, Ohio. ‘Valuations are very attractive and there are many exciting growth opportunities, but we see near-term headwinds that keep us on the sidelines. ‘Much like trying to herd cats, it is difficult to discuss emerging markets as if they were a homogeneous entity. Yet we are often called upon to do so and today there are some macro factors that can be broadly cast across the emerging markets.’ The first relates to monetary policy. Tightening monetary policy both domestically and in a number of emerging markets can slow growth as access to capital becomes constrained. Next, food and energy costs represent a much larger proportion of emerging consumer spending, and rising costs serve to limit discretionary spending. Lastly, an expected global growth slowdown could curtail demand in important end markets like the US and Europe. ‘Combined, Touchstone believes these macro headwinds are likely to impede earnings growth for emerging markets companies, which keeps us at an underweight in the near term,’ adds Thomas. Franklin Templeton Investment Solutions recommends underweighting emerging market equities, driven by snagged global supply chains, elevated food and energy prices, and a tightening liquidity backdrop. Emerging markets account for roughly 11% of the MSCI ACWI index, against which it recommends a 2% active underweight, primarily out of the emerging markets ex-China component. ‘Within the emerging markets basket, we prefer commodity-exporting countries, such as Brazil and Saudi Arabia, that are better insulated from the threat of sticky inflation pressure than some of their Asian peers – Korea and India in particular,’ says head of research Gene Podkaminer. ‘While commodity-exporting nations may have little policy tightening left to do, potentially more rapid hikes by Korea and India’s central banks would stress valuations further and provide an unwelcome backdrop for local risk assets when paired with ongoing supply chain disturbances.’ The team has recently upgraded its stance on China to a neutral weight on the basis that the relaxation of Covid-19 lockdowns in Beijing and Shanghai will boost both consumption and manufacturing. ‘E-commerce stocks that have delivered poor earnings over the past quarter, such as Alibaba and Meituan, are likely to see some earnings relief as a result,’ adds Podkaminer. Barrow Hanley of Dallas, Texas, is ‘being greedy when others are fearful’ and recommends an overweight position of 17.5%. Rand Wrighton, a senior managing director and equity portfolio manager/analyst, perceives ‘compelling long-term attributes that have gone on sale at dirt cheap prices’. ‘The market is an effective discounting mechanism and many, if not all, of the headwinds, are already baked into the market,’ he says. ‘As we look ahead over the next 12 to 18 months, emerging market conditions appear to be set up for significant improvements.’ Starting with China, he believes the government has achieved its goal of integrating Hong Kong into its security apparatus. Policy crackdowns on the real estate, education and technology sectors are effectively done and, looking ahead, Chinese officials have hinted at more pro-growth policy measures to come alongside a gradual easing of Covid-19 lockdowns. Looking beyond China, a post-pandemic travel recovery tipped for 2023 will help tourism-driven economies like Thailand, while higher commodity prices bode well for many other emerging market countries such as Brazil and Indonesia. ‘We are nearing a peak in dollar strength and as the dollar weakens it will magnify these economic tailwinds and drive emerging markets performance,’ adds Wrighton. The Virtus NFJ International Value fund has had the ability to invest up to 50% in emerging markets since its inception in 2003. Today, the fund has a 37% allocation. ‘Simply put, emerging markets are the cheapest we’ve seen versus the developed world in decades,’ says John Mowrey, NFJ’s chief investment officer. The last time he saw valuation dislocations of this magnitude was 1998. Investors who bought into emerging markets then had beaten the S&P 500 by 135% by April of this year. NFJ sees a lot of value in China. ‘Investors scared off by regulatory crackdowns or Covid-19 lockdowns may run the risk of being under-allocated to the world’s second-largest economy at a time when the country trades at a discount to its 25-year average,’ says Mowrey. ‘While current market dynamics have created extraordinary levels of uncertainty and idiosyncratic stock risk, headline risk can lead to compelling investment opportunities for active market participants. ‘For those active investors with a focus on quality that includes dividends and dividend growth, we believe opportunities for investment are compelling. Focusing on companies that pay dividends can help blunt volatility, while dividend growth may help offset inflation – offering more defensive positioning in uncertain markets.’
How big a slice of a portfolio should emerging markets equities command? Jennifer Hill canvasses opinion
“We approach emerging markets exposure with cautious optimism”
Tim Murphy, Senior portfolio manager, Envestnet
“Much like trying to herd cats, it is difficult to discuss emerging markets as if they were a homogeneous entity”
Richard ‘Crit’ Thomas, Global market strategist, Touchstone Investments
5%
7%
9%
17.5%
“rapid hikes by Korea and India’s central banks would stress valuations further and provide an unwelcome backdrop for local risk assets”
Gene Podkaminer, Head of research, Franklin Templeton Investment Solutions
“As we look ahead over the next 12 to 18 months, emerging market conditions appear to be set up for significant improvements”
Rand Wrighton, Senior managing director and equity portfolio manager/analyst, Barrow Hanley
37%
“Focusing on companies that pay dividends can help blunt volatility, while dividend growth may help offset inflation”
John Mowrey, Chief investment officer, NFJ
Emerging market equities have disappointed at times over the past decade so being bearish on the asset class today is understandable. Many of the most interesting sector and company opportunities have been destroyed – or at least severely damaged – over this time period, by political decisions, mismanaged macroeconomic policies (particularly the lack of real structural reforms in key markets), and the constant fear that the monetary cycle set by the Federal Reserve would dictate everything growth-related in emerging markets. In part, this explains the perception that emerging markets are simply a leveraged play on change in global risk aversion. However, as stock-pickers focused on selecting growth and quality companies that can create sustainable Economic Value Added (EVA) over the long term, we believe it is possible to deliver responsible returns in emerging markets but you have to be laser-focused on where you search for value-creating companies as well as avoiding those that are not. Right now, we believe there is the opportunity to gain exposure to EVA-creating companies at attractive valuations compared to historic levels. There is negative sentiment towards growth and quality in emerging markets thanks to a fear of inflation and a concern that China could be uninvestable – both of which, we believe, are already priced-in by the market. Therefore, in our view, it is time to be constructive as, first, we do not feel we are seeing a sustained 1970s’ style of inflation, and second, China is investable; it is just changing. As Warren Buffett once famously said, investors should “be fearful when others are greedy and greedy when others are fearful”. Given this backdrop, where are we looking to find emerging market investment opportunities and where, in particular, do we think the valuation levels are attractive? [Spoiler alert: we do not think the world post-Covid/Russia-Ukraine war is likely to be dramatically different from before March 2020. We will still be faced with many of the same structural issues, some of which, particularly around geopolitics and technology, have been supercharged between then and now.] 1. Deglobalisation: We do not believe in an outright slowdown, unwind or reverse of globalisation, but rather that the nature of what constitutes global trade will morph in its make-up. The trade of tangible goods is likely to slow relative to global GDP, just as the trade in intangible goods – principally digital services – is likely to continue to grow strongly in coming years. 2. Next-generation technology: We believe we are at the forefront of a new technology upgrade cycle and faced with attractive, growing demand. In emerging markets, we are able to find many key technology companies with strong IP (intellectual property) creating real pricing power in areas of rising demand. This makes us positive for the long term, not just today. 3. China is changing: Despite contrasting views on its aggressive global expansion, China undoubtedly has a large domestic economy that is aging rapidly and needs to increase productivity. Growth is likely to come from digitization, advanced industrial manufacturing and healthcare. Old China, as we know it, is not coming back, hopefully bringing less ‘official’ GDP (gross domestic product) growth and more realistic EPS (earnings per share) growth. 4. India’s ‘smartphone moment’: India is reaching the point where a large part of the young urban population moving into the service economy has also moved online. Its equity market will look very different over the next decade and we believe investors such as ourselves could be rewarded if able to identify the future ‘winning’ companies. 5. ESG and energy: ESG (environmental; social; governance) has risen in prominence but we believe it will further evolve, away from a narrow, backward-looking definition of ESG towards sustainability and its true integration into an investment decision-making process – something we call ESG 3.0. We believe the inflection point for adoption by the wider market has been triggered by the global energy market, where the transition towards clean energy is under way. This throws up questions including how fast should we move away from fossil fuels? How green are ‘green’ metals? What trade-offs might we have to make in the transition to clean energy? We believe in a more balanced approach, with a structural growth environment for the clean energy transition which will contribute to a strong commodity cycle. When researching companies exposed to these themes, our investment philosophy – that feeds directly into our stock selection and portfolio construction – is to integrate the study of a company’s sustainability seamlessly with that of its fundamentals (profitability; revenue; assets; liabilities; growth potential). The same individuals in the same team look at both, rather than treating them as two separate areas to study. Our investment process aims to identify companies where there is the potential for us to have a different view on these drivers relative to market expectations. These five themes in emerging markets are by no means an exhaustive list and the Polar Capital Emerging Market Stars Fund looks at many other interesting growth possibilities, such as Vietnam, copper, Indian housing and so on. However, we believe the five key themes outlined above will provide a large part of what will define true value creation and responsible returns in emerging markets for the years to come.
Ben Barber
SVP, Director of Municipal Bonds
Jorry Noeddekaer
Fund Manager, Polar Capital Emerging Market Stars Fund
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‘It is time to be constructive as, first, we do not feel we are seeing a sustained 1970s’ style of inflation, and second, China is investable; it is just changing’
As recent as 2019, emerging markets remained the great hope for fast economic growth and profitable investing. Top of the list of Wall Street’s favorites was the world’s second-largest economy – China. Then came the Covid-19 pandemic, followed by Russia’s invasion of Ukraine this February. That turned the tables. Now, what worries investors is whether investing in China remains worth the risk. In the bearish camp is Peter Tchir, head of global macro strategy at Academy Securities in New York. ‘I would not be investing in China,’ he says. ‘I’ve been negative on it for quite some time.’ The first part of the problem is China’s recent history. ‘If you go back to pre-Covid, you had issues about intellectual property theft that was occurring above and beyond what corporations had estimated,’ Tchir says. In other words, businesses that set up shop in mainland China saw their trademarks and patented ideas stolen by local companies on a worrying scale. Still, for much of the time, western corporations largely ignored it. But when the Covid-19 virus spread worldwide from Wuhan, China, many western corporations realized how reliant they were on China for essential medical supplies, automobile components and other manufactured goods. Shortages of items that consumers had taken for granted for at least two decades quickly ensued across the US and Europe. Ultimately, that led to a major relocation of factories away from China – to places like Thailand and Vietnam. ‘We are in the midst of a decoupling process and there’s more to come,’ says Marc Chandler, chief market strategist at Bannockburn Global Forex. ‘It takes bad things for businesses to give up, but the US trade deficit with Vietnam has exploded.' In part, the trend may be driven by Chinese companies moving offshore to avoid sanctions imposed by the West. Nevertheless, businesses relocating away from China will hurt the country’s economy and could slow growth more than expected. POTENTIAL PROBLEMS Foreigners investing in western-listed Chinese companies need to be aware of what they are buying. The reality is that a US-listed share of Alibaba isn’t really a stake in Alibaba but a share in a shell company that distributes profits. This ‘variable interest entity’ structure – a popular way for Chinese issuers to raise overseas capital while circumventing China’s regulation of foreign investment in industries that are closed or restricted to foreign capital – occupies a legal grey area. Such companies are vulnerable to being delisted by US authorities or declared illegal by Chinese authorities. The rebuttal to that argument is that such action would mainly impact individual investors, not institutions that invest via Hong Kong. What about the development of China’s military and Beijing’s increasingly belligerent rhetoric towards Taiwan to become part of China? Taiwan has repeatedly rejected such overtures despite multiple aggressive military displays from China. In simple terms, commentators worry that China will try to invade Taiwan, like Russia invaded Ukraine. Tchir deems it unlikely. ‘We don’t think China will invade,’ he says. While on paper China’s military is impressive, it hasn’t been tested in a significant way for decades and a military incursion to Taiwan may be as unsuccessful as Russia’s efforts in Ukraine. ‘How many foreign wars has China been involved in over the last 40 years?’ Chandler asks. ‘It’s been more of a bully than a soldier.’ Add to that China’s enormous exposure to US Treasurys, which account for one-third of its assets. The country is hugely exposed to the weaponization of the global financial system and is getting a front row seat to the effectiveness of this in Russia. ‘China presently has no good alternatives to the US dollar or the euro for its ever-increasing savings pile,’ says Phil Torres, an emerging markets debt manager at Aegon Asset Management in Chicago, Illinois. ‘The move on the Russian Central Bank [CBR] will potentially drive China closer to the West and could force a hard wedge between the growing economic bloc of China and Russia. The freeze on CBR assets could be one of the most effective foreign policy tools the US has deployed at China in the last 25 years.’ Other financial factors serve to temper any desire by China to rock the boat, too. Russia’s stock market closed for a month as investors tried to dump their holdings. The MOEX Russia index, which tracks a basket of Russia-listed shares, dropped 37% from 10 February to 6 June. Russia’s currency, the ruble, took a beating as well. FUNNEL OF CAPITAL When China surveys the situation, it has to consider the impact of waging war on Taiwan, a major US ally in Asia. Could China sanction-proof itself with stockpiles of essential food and materials? Maybe so. But not likely. ‘I think China is careful,’ Bannockburn’s Chandler says. ‘China won’t want to cut off the funnel of capital.’ All told, investing in China – whether through the markets or direct investment – is riskier than it was a few years ago. Cautious investors wanting to maintain exposure to the rapid growth potential of emerging market stocks could consider swapping the iShares MSCI Emerging Markets ETF, which has around 30% in China, for the iShares MSCI Emerging Markets ex-China ETF. However, those in the bullish camp warn that investors allocating to emerging markets exclude China at their peril. ‘Will investors change their actions? Yes, but only at the margins,’ Chandler reckons. ‘There is still profit and trade potential.’
While investment in China might be riskier than in the past, worries that the country could follow Russia in waging war are likely to prove groundless, writes Simon Constable
“China presently has no good alternatives to the US dollar or the euro for its ever-increasing savings pile”
Phil Torres, Emerging markets debt manager, Aegon Asset Management
China: buy or sell?
What does the Russia-Ukraine war mean for emerging markets in 2022 and how has your base case changed given the current market situation? On a macro level, relative to developed markets, less has changed across many emerging markets. Western Europe is heavily dependent on Russian commodities, but Russia doesn’t have the same relationship with many of its EM counterparts. There are 24 different countries across EMs and the Russia-Ukraine war impacts some more than others, but most of them are operating in a steady-state environment. While there are 15 or 18 countries which are not directly impacted by the conflict in Ukraine, the Middle Eastern, North African countries had the clearest direct impact. Generally, they are beneficiaries of higher commodity energy prices, but they may face some challenges from higher food prices or lower tourism travel at the same time. The government budgets for those countries are probably going to be very healthy, but the consumer budgets might be a little more strained. For countries less directly impacted, higher commodities prices are still having a ripple effect but many EM central banks were already ahead of the inflation curve and were increasing interest rates during 2021 or early 2022. The situation is not as severe or substantial an impact as you might be facing in the US or western Europe – where the central banks need to raise interest rates more aggressively. Equally importantly, the cyclical reopening of many emerging market countries is still ongoing. Across developed markets, 2021 was really the peak reopening year. Prior to Russia-Ukraine, our base case for 2022 was a continuing broad-based recovery and peak reopening in emerging markets. Despite recent challenges, we still believe that EM will have these reopening tailwinds in the latter half of 2022, and even going into 2023. And particularly – still to come in China – that creates or protects a different type of economic momentum that people might be used to seeing or expecting in western countries. What makes a strong business and why do you think these types of companies are well suited for the current environment of elevated volatility? Emerging markets experienced several different crises in the 1980s and 1990s. The companies that have really become market leaders in most countries have done so by adapting and being very nimble during times of crisis over the last 30 or 40 years. Being a special type of strong business today comes from a few things. Number one: it is that historical experience of when times are good or when times are bad, here’s how our strategy needs to adjust or pivot to a new environment. Whether that’s a change in a government situation, the macro environment, or geopolitics. Secondly, a strong business, typically, is a number one or number two player in its market or in the value chain where it participates. So, it has more bargaining power than its competitors do. That’s important because when times get tough a strong business is still able to capture a differentiated share of profits relative to its competitors. A final thing that’s important is, financially, in developed markets, when times get tough, central banks cut interest rates to bail out corporate borrowers and consumers, but in emerging markets when times get tough, central banks raise interest rates which means you need to have your own capital. Globally, there’s a lot of uncertainty right now, so as opposed to trying to solve for a bunch of unknowable macro outcomes, we’re anchoring to strong businesses we think can be durable across of variety of possible outcomes. How does your three-basket approach help mitigate volatility during times of uncertainty? There are two parts of investing. The short-term, where you have very limited control over how market swings might impact a portfolio, and then the longer-term, where earnings fundamentals should shine through. What many managers do to mitigate the benchmark relative risk is build a portfolio that looks like the benchmark from a country or sector allocation standpoint. But because, in our view, attractively priced strong businesses are generally rare, it’s more effective to manage a portfolio of 50 or so high conviction stocks, rather than hundreds. With 50 stocks it’s very difficult to like the index from a sector or country basis, but we do think you can look like the index from a style perspective. The index is about 40% value-oriented and 60% growth-oriented. By having this roughly 40/60 mix between value and growth, when times get volatile, that balance keeps us in the game during shorter-term volatility, where the moves may reflect broader macro factors rather than the fundamentals. And if that keeps us in the game, then over the medium- to longer-term, the fundamentals of our strong businesses can ultimately shine through to deliver bottom-up alpha.
As the Russia-Ukraine war continues with no end in sight, Josh Rubin, portfolio manager and managing director of Thornburg Investment Management, shares his views on the emerging market outlook.
Josh Rubin
Portfolio manager and managing director of Thornburg Investment Management
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The Site 3.1 Citywire reserves the right to modify, alter, change or withdraw any part of or access to the Site or App, whether temporarily or permanently, with or without notice to you and you confirm that any such modification, alteration, changes or withdrawal by Citywire shall be without any liability to you. 4. Intellectual Property Rights 4.1 Subject to the licence set out in clause 5 you must not copy, reproduce, modify, create derivative works from, transmit, distribute, publish, summarise, adapt, paraphrase or otherwise publicly display any Content or any portion of the Site or App without the specific written consent of a director of Citywire. This includes, but is not limited to, the use of Content for any form of news aggregation service or for inclusion in services which summarise articles, the copying of any fund manager data (career histories, profiles, ratings, rankings etc) either manually or by automated means (“scraping”). 4.2 All Intellectual Property Rights in and to our Site and App (including the Content) is owned by Citywire or our third party licensors. No rights are granted to you in relation to such Intellectual Property Rights other than the limited licence rights expressly set out in clause 5. 4.3 Content is protected by copyright laws and treaties around the world, including, without limitation, U.S. Copyright law. Unless otherwise noted, the Site, the App, and all Content are © Citywire Financial Publishers Ltd 2019. All rights not expressly granted herein are reserved. Images and videos used on our websites may come from various third party image libraries. For credit information relating to specific images where not stated, please contact picturedesk@citywire.co.uk 5. Licence 5.1 Subject to the terms of this Agreement, Citywire grants you a non-transferable, non-sublicensable, royalty-free, non-exclusive limited licence to use our Site on the following conditions: (i) you may, subject to clauses 5.3, 5.4 and 5.5, display Feed Content on your website and on other websites in respect of which you have obtained all necessary permissions and authorisations to display Feed Content on; (ii) you shall not copy, display, reproduce or create derivate works from any Content (other than Feed Content to which clause 5.1(i) applies); and (iii) nothing in these Terms grants you any right to use Citywire’s logo, brand or trade marks on your site or elsewhere. 5.2 You must ensure that all Feed Content displayed on any websites pursuant to clause 5.1 has an accreditation to Citywire as follows: “Citywire information is proprietary and confidential to Citywire Financial Publishers Ltd (“Citywire”). It may not be copied. Citywire excludes any liability arising out its use.” 5.3 Unless otherwise specifically agreed in writing by Citywire, you may not directly or indirectly charge users specifically for accessing Feed Content or otherwise commercialise Feed Content. You shall not re-sell or otherwise commercialise the Content in any way (other than the limited rights in relation to Feed Content set out in clause 5.1). 5.4 You must create a functional link back to the Citywire story(ies) summarised by the Feed Content. If you are displaying the Feed Content where a functional link back to Citywire is not possible, you must display on-screen the URL from which the Feed Content can be obtained. You may not directly or indirectly change, edit, add to or produce summaries of or derivative works from Feed Content or any content on the Citywire website nor place any full-story Citywire content in an HTML (or any other markup language) frame-set. 5.5 You may not directly or indirectly suggest any endorsement or approval by Citywire of your website or any non-Citywire entity, product or content or any views expressed within your website or service. 5.6 You acknowledge that Citywire has absolute editorial control over all Content and you accept that Citywire is editorially independent and that the editorial integrity of Content is the sole responsibility of Citywire. 5.7 Should you receive any enquiries which relate to Citywire or the Citywire Content you shall promptly refer such enquiries to Citywire. 5.8 You acknowledge and agree that we own all rights of whatever nature in and to the App. Citywire grants you a non-transferable, non-sublicensable, royalty-free, non-exclusive limited licence to (i) download the App to your device from the app store where it is lawfully held; and (ii) use the App for the purpose of accessing our Site on these Terms. You are granted no other rights in relation to the App and all rights not expressly granted are reserved by us. You acknowledge and agree that Citywire has no responsibility for or in relation to the app store from which you downloaded the App and has no obligation to maintain the App. The App is supplied ‘as is’ and neither Citywire nor any anyone else makes any representation, warranty, condition or other commitment (whether express or implied, by statute, common law, collaterally or otherwise) of any kind in relation to the App. Neither Citywire nor anyone else will have any liability of whatever nature (whether in contract, negligence or other tort or otherwise) in relation to the App. You will not reverse engineer, decompile or otherwise endeavour to obtain the source code to the App (save to the extent that you cannot be prohibited from so doing under applicable law). 6. Contributions 6.1 Whenever you make any Contribution you must comply with the Content Standards. 6.2 Subject to these terms of use, Citywire acknowledges and agrees that you retain ownership of all your intellectual property rights to your Contributions, and no intellectual property rights shall be assigned from you to Citywire. 6.3 You grant Citywire a perpetual, royalty-free, non-exclusive, perpetual (which for the avoidance of doubt means continuing after this Agreement), irrevocable, transferable, world-wide licence to use, copy, distribute, display, disclose and sell to third parties any Contribution (in whole or in part) for any purpose. These activities include but are not limited to editing or creating derivative works of any Contribution. 6.4 To the maximum extent permitted by applicable law, you irrevocably and unconditionally waive all moral rights to any Contribution. 6.5 You acknowledge and agree that (i) we have the right to remove or edit any Contribution you make on our services, including modifying and adapting it for operational and editorial reasons, with or without showing or marking that the Contribution has been removed or edited; and (ii) we have the right to disclose your identity to any third party who is claiming that any Contribution constitutes a violation of their intellectual property rights, or of their right to privacy. 6.6 Citywire does not moderate or actively review Contributions. Therefore all Members and visitors to the Site should treat any Contributions with caution. You accept (i) that we are not responsible for content of Contributions; (ii) that we do not endorse any of the material contained in them; and (iii) Citywire does not check the accuracy of information supplied by Members in their profiles. 6.7 It is the policy of Citywire to respond to alleged infringement notices that comply with the Digital Millennium Copyright Act (“DMCA”). If you believe that your copyrighted work has been copied in a way that constitutes copyright infringement and is accessible via the Solution, please notify the Citywire copyright agent as set forth below. For your complaint to be valid under the DMCA, you must provide the following information in writing: a. An electronic or physical signature of a person authorized to act on behalf of the copyright owner; b. Identification of the copyrighted work that you claim has been infringed; c. Identification of the material that is claimed to be infringing and provide a link (where available) to where it is located on the Solution; d. Information reasonably sufficient to permit Citywire to contact you, such as your address, telephone number, and, email address; e. A statement that you have a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or law; and f. A statement, made under penalty of perjury, that the above information is accurate, and that you are the copyright owner or are authorized to act on behalf of the owner. The above information must be submitted to the following Citywire copyright agent: Ona Kviliute +44 (0)20 7840 5125 okviliute@citywire.co.uk 3 Spring Mews, London, SE11 5AN, United Kingdom UNDER FEDERAL LAW, IF YOU KNOWINGLY MISREPRESENT YOUR CLAIM, YOU MAY BE SUBJECT TO CRIMINAL PROSECUTION FOR PERJURY AND CIVIL PENALTIES, INCLUDING MONETARY DAMAGES, COURT COSTS, AND ATTORNEYS’ FEES. In accordance with the DMCA and other applicable law, Citywire has adopted a policy of terminating, in appropriate circumstances, the accounts of users who are deemed to be infringers. Citywire may also, at its sole discretion, limit access to the Site and/or terminate the accounts of any users who infringe any intellectual property rights of others, whether or not there is any repeat infringement. 7. Acceptable Use Policy 7.1 You may use our Site only for lawful purposes. You may not: (i) use our Site in any way that breaches any applicable local, national or international law or regulation; (ii) use any materials, data or information which you have obtained from the Site in any manner which, in Citywire’s reasonable opinion, is derogatory, damages Citywire’s reputation or takes advantage of it in any way; (iii) use our Site in any way that is unlawful or fraudulent, or has any unlawful or fraudulent purpose or effect; (iv) use our Site to send, knowingly receive, upload, download, use or re-use any material which does not comply with the Content Standards; (v) subject to Clause 5, deep-link to any portion of our Site for any purposes without the prior written permission of Citywire; (vi) perform any automated use of our Site, such as, but not limited to, using robots, spiders, scripts to create Contributions, to extract any of the content of our Site through such means as ‘screen scraping’, ‘database scraping’ or otherwise; (vii) violate the restrictions in any robot exclusion headers on this website or bypass or circumvent other measures employed to prevent or limit access to our Site; (viii) use this service as research or support for, or to inform your own or your company’s or employer’s subscription based service, or any subscription based service without obtaining a licence from Citywire in writing, such licence to be on commercial terms agreed by the parties; (ix) use our Site (or any of the Content) for the purpose of building a database or to use this for your own commercial exploitation by its inclusion in your own activities and/or services without obtaining the written approval of Citywire in advance of its publication; (x) access, use, or distribute the Site, App (or any Content) to develop (or assist any third party in developing) a product or service (including events) that competes with any product, service, or event of Citywire, or for any other competitive purposes. (xi) interfere with, disrupt, or create an undue burden on our services or the network or services connected to our Site; (xii) engage in, either directly or indirectly, or encourage others to engage in, click-throughs generated through any manner that could be reasonably interpreted as coercive, incentivised, misleading, malicious, or otherwise fraudulent; (xiii) collect information from our Site and incorporate it into your own database or products; or (xiv) use our services to knowingly transmit any data, send or upload any material that contains viruses, Trojan horses, worms, time-bombs, keystroke loggers, spyware, adware or any other harmful programs or similar computer code designed to adversely affect the operation of any computer software or hardware. 7.2 Use of the Printable Version facility is for private purposes only EXCEPT ONLY In the case of financial intermediaries, wealth managers or other entities or individuals providing investment advice to clients the printable version can be used to aid such services. 8. Content standards 8.1 These content standards apply when you make a Contribution to the Site. These content standards apply to each part of any Contribution as well as to its whole. 8.2 Contributions must: (i) be accurate (where they state facts); (ii) be genuinely held (where they state opinions); and (iii) comply with applicable law, rules and regulations, in the U.S. and in any country from which they are posted. 8.3 Contributions must not: (i) infringe or promote infringement of any copyright, database right, trade mark or other intellectual property right of any other person (including, promoting or offering pirated computer programs or links to such programs, information used to circumvent manufacturer-installed copy-protect devices, including serial registration numbers for software programs, rights management information or any type of cracker utilities); (ii) contain intentionally made false or misleading statements; (iii) offer to buy, sell or broker an investment; (iv) violate applicable laws, rules or regulations, including without limitation, rules or regulations of any applicable stock exchange or breach insider dealing regulations or confidentiality agreements; (v) involve commercial activities and/or sales without prior written consent from us such as contests, sweepstakes, group-buying, advertising, or pyramid schemes; (vi) be made in breach of any legal duty owed to a third party, such as a contractual duty or a duty of confidence; (vii) contain any material or link to material which: a. is defamatory of any person; b. is obscene, vulgar offensive, hateful or inflammatory; c. is likely to harass, upset, embarrass, alarm or annoy any other person; d. is threatening, abusive or invade another’s privacy, or likely to cause annoyance, inconvenience or needless anxiety; e. contains or promotes sexually explicit material or violence; f. promote discrimination based on race, sex, religion, nationality, disability, sexual orientation or age; or g. is likely to deceive any person; (viii) use invalid or forged headers to disguise the origin of any Contribution, or otherwise misrepresenting yourself or the source of any Contribution; (ix) use our Site to transmit, or procure the sending of, any unsolicited or unauthorised advertising or promotional material or any other form of similar solicitation (spam); (x) be used to impersonate any person, or to misrepresent your identity or affiliation with any person; (xi) give the impression that they emanate from Citywire or a Citywire employee, administrator or moderator, or another user of our Site; or (xii) advocate, promote or assist any illegal activity. 9. Non-reliance 9.1 You agree that you are responsible for your own investment decisions and that you are responsible for assessing the suitability and accuracy of all information and for obtaining your own advice thereon. You recognise that any information given on our Site is not related to your particular circumstances. Circumstances vary and you should seek your own advice on the suitability to them of any investment or investment technique that may be mentioned. (a) We do not provide, and no Content constitutes, investment advice; (b) You will not treat or represent Content as investment advice; (c) We do not recommend or endorse any product; (d) Content is not intended to address your particular requirements. We are not aware of circumstances specific to you and which could influence which financial products are more or less suitable for you and do not represent that we are aware of any such circumstances. We do not recommend that any particular product is suitable for you; (e) No Content constitutes or should be interpreted as a solicitation to engage in any investment activity; (f) Any investment decision made by you is entirely at your own risk; (g) Subject to paragraph 11, we shall not be liable for any losses, cost or expenses which may be incurred by you as a result of any investment made; (h) You may not use the Content in, or generate based on the Content, any advice, recommendations, guidance, publications or alerts made available to your clients or other third parties; (i) Whilst we try to ensure the Content is accurate and up to date, we cannot be responsible for any inaccuracies in Content. We are under no responsibility to provide you with access to any additional information or to update the Site, even if inaccuracies become apparent. 9.2 The fund manager performance analyses and ratings provided on this website are the opinions of Citywire as at the date they are expressed and are not recommendations to purchase, hold or sell any investment or to make any investment decisions. Citywire’s opinions and analyses do not address the suitability of any investment for any specific purposes or requirements and should not be relied upon as the basis for any investment decision. 9.3 Persons who do not have professional experience in participating in unregulated collective investment schemes should not rely on material relating to such schemes. 9.4 Past performance of investments is not necessarily a guide to future performance. Prices of investments may fall as well as rise. 9.5 Persons associated with or employed by Citywire may hold positions or take positions in investments referred to in this publication. 9.6 Citywire operates a policy of independence in relation to matters where the operators may have a material interest or conflict of interest. 10. Limited Warranty 10.1 Citywire will use reasonable endeavours to maintain the Site. You will not be eligible for any compensation because you cannot use any part of the Site or for any failure of the Site as a result of an event beyond Citywire’s reasonable control. 10.2 Neither Citywire nor its employees assume any responsibility or liability for the accuracy, completeness or availability of the information contained on our Site. 10.3 Neither Citywire nor anyone else makes any representation, warranty, condition or other commitment of whatever nature in relation to any information obtained by you through use of this Site. You acknowledge and agree that any information that you receive through use of the Site is provided “as is” and “as available” basis without representation or endorsement of any kind and is obtained at your own risk. 10.4 You agree that you are solely responsible for any damage to your computer system and/or loss or damage to your data files through use of this Site or by the use of links on the Site to external information. 10.5 To the maximum extent permitted by law, Citywire excludes all representations, warranties, conditions or other terms, whether express or implied (by statute, common law, collaterally or otherwise) in relation to the Site or otherwise in relation to any Content or Feed, including without limitation as to satisfactory quality, fitness for particular purpose, non-infringement, compatibility, accuracy, or completeness. 11. Liability To the maximum extent permitted by law, Citywire will not be liable in contract, tort (including negligence) or otherwise for any liability, damage or loss (whether indirect, consequential, special or otherwise) incurred or suffered by you or any third party in connection with our Site, or in connection with the use, inability to use, or results of the use of our Site or App, any websites linked to it or any materials posted on it or otherwise in relation to any Content or Feed. Citywire does not limit liability for fraudulent misrepresentation or for death or personal injury arising from Citywire’s gross negligence or willful misconduct. HOWEVER, YOUR EXCLUSIVE REMEDY FOR ANY CLAIM ARISING FROM A BREACH BY CITYWIRE OF THESE TERMS IS CESSATION OF USE OF THE SITE, APP, OR CONTENT. FURTHER, TO THE GREATEST EXTENT PERMITTED BY LAW, THE TOTAL LIABILITY OF CITYWIRE IS LIMITED TO THE GREATER OF $50 OR AN AMOUNT NOT EXCEEDING THE TOTAL AMOUNT ACTUALLY PAID BY YOU TO CITYWIRE DURING THE PRIOR SIX (6) MONTHS IN CONNECTION WITH YOUR INDIVIDUAL USE OF THE SITE OR THE APP. In addition, you may bring a claim only on your own behalf. You will not participate in a class action or class-wide arbitration for any claims covered by these terms. 12. Changes to our Terms Citywire may change the Terms from time to time. Any such changes will be incorporated on our Site. Changes will take effect 30 days after notification. Your continued use of any part of the Site following such change shall be deemed to be your acceptance of such amended Terms. You acknowledge that you are solely responsible for checking these Terms from time to time to see the changes which have been made to these Terms. If you do not accept any such changes you should stop using our Site. 13. Breaches; Term and Termination 13.1 The Terms will take (re-take) effect at the time you access and use the Site. You agree that Citywire may terminate your membership or the agreement constituted by these Terms (as Citywire may choose) and restrict your access to the Site (or part thereof) without prejudice to any other rights or remedies that Citywire may have if Citywire is of the reasonable opinion that you have breached these Terms or acted inconsistently with the spirit of these Terms. The provisions concerning Intellectual Property Rights, The Site, Contributions, Non-Reliance, Limited Warranty, Liability, Breaches; Term and Termination, Enforcing Security, Governing Law, Arbitration, Injunctive Relief, Waiver and Severability and Entire Agreement the Solution Feedback, Confidentiality, will survive the termination of these Terms and Conditions for any reason. 13.2 You agree to indemnify Citywire against any and all actions, claims, costs, proceedings, losses, damages or liabilities arising from your use of the Site or App (including without limitation Contributions or Content) and/or in relation to any information or data you use or access by means of the Site. 13.3 You acknowledge that a breach of these Terms may give rise to civil damages and criminal penalties. Citywire reserve the right to take action against you to uphold these Terms and its rights, which may involve pursuing injunctive proceedings, as further set forth below. 14. Enforcing Security You may not use the Site, App, Content or any of Citywire’s data, systems, network, or services to engage in, foster, or promote illegal, abusive, or irresponsible behavior, including, without limitation, accessing or using data, systems, or networks in an unauthorized manner, attempting to probe, scan, or test the vulnerability of a Citywire system or network, circumventing any Citywire security or authentication measures, monitoring Citywire data or traffic, interfering with any Citywire services, collecting or using from the Site email addresses, screen names, or other identifiers, collecting or using from the Site information without the consent of the owner or licensor, using any false, misleading, or deceptive TCP-IP packet header information, using the Site to distribute software or tools that gather information, distributing advertisements, or engaging in conduct that it likely to result in retaliation against Citywire or its data, systems, or network. Actual or attempted unauthorized use of the Site may result in criminal and/or civil prosecution, including, without limitation, punishment under the Computer Fraud and Abuse Act of 1986 under U.S. federal law. Citywire reserves the right to view, monitor, and record activity through the Site without notice or permission from you. Any information obtained by monitoring, reviewing, or recording is subject to review by law enforcement organizations in connection with investigation or prosecution of possible criminal or unlawful activity through the Site as well as to disclosures required by or under applicable law or related government agency actions. Citywire will also comply with all court orders or subpoenas involving requests for such information. In addition to the foregoing, Citywire reserves the right to, at any time and without notice, modify, update, suspend, terminate, or interrupt operation of or access to the Site, or any portion of the Site in order to protect Citywire. 15. Governing Law; Void Where Prohibited All offers for all functions, products or services, which are made on the Site, are void if they are prohibited by applicable law. You access the Site on your own volition and are responsible for compliance with all applicable laws with respect to your own access and use of the Site and its offerings. These Terms have been made in and will be construed and enforced in accordance with the laws of the State of New York, U.S.A. as applied to agreements entered into and completely performed in the State of New York (without effect to its conflicts of law provisions). 16. Arbitration Subject to the right of Citywire to seek injunctive relief, disputes will be will be resolved by binding, individual arbitration under the American Arbitration Association pursuant to its Commercial Arbitration Rules or pursuant to its International Centre for Dispute Resolution (ICDR) Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having competent jurisdiction thereof. There is no judge or jury in arbitration, and court review of an arbitration award is limited. For any arbitration, the arbitrator(s) selected shall have a minimum of ten years of experience with and knowledge of the subject matter of the claim and dispute. The place of arbitration shall be in New York, New York. The arbitrator shall be bound by the provisions of these Terms and base the award on applicable law and judicial precedent. The arbitrator may award money or equitable relief in favor of only the individual party seeking relief and only to the extent necessary to provide relief warranted by that party’s individual claim. Similarly, an arbitration award and any judgment confirming it apply only to that specific case; it cannot be used in any other case except to enforce the award itself. However, the arbitrator(s) may award to the prevailing party all of its costs and fees. “Costs and fees” mean all reasonable pre-award expenses of the arbitration, including the arbitrator’s fees, administrative fees, travel expenses, out-of-pocket expenses such as copying and telephone, court costs, witness fees, and attorneys’ fees. Upon rendering a decision, the arbitrator(s) shall state in writing the basis for the decision, including the findings of fact and conclusions of law upon which the decision is based. The decision of the arbitrator(s) shall be final and binding upon the parties, and shall not be subject to appeal. You and Citywire have agreed to execute this Agreement in the English language, and all dispute settlement proceedings and communications, written and oral, between you and Citywire shall be conducted in the English language. 17. Injunctive Relief Notwithstanding the arbitration provision above, you acknowledge that any breach, threatened or actual, of these Terms, including, without limitation, with respect to unauthorized use of Citywire’s proprietary assets and especially, any Content, will cause irreparable injury to Citywire. Such injury would not be quantifiable in monetary damages and Citywire would not have an adequate remedy at law. You therefore agree that Citywire shall be entitled, in addition to other available remedies, to seek and be awarded an injunction or other appropriate equitable relief from a court of competent jurisdiction restraining any breach, threatened or actual, of your obligations under any provision of this Terms. Accordingly, you hereby waive any requirement that Citywire post any bond or other security in the event any injunctive or equitable relief is sought by or awarded to Citywire to enforce any provision of these Terms. 18. Waiver and Severability Failure to insist on strict performance of any of the terms and conditions of these Terms will not operate as a waiver of any subsequent default or failure of performance. No waiver by Citywire of any right under these Terms will be deemed to be either a waiver of any other right or provision or a waiver of that same right or provision at any other time. If any part of these Terms are determined to be invalid or unenforceable pursuant to applicable law including, but not limited to, the warranty disclaimers and the liability limitations set forth above, then the invalid or unenforceable provision will be deemed superseded by a valid, enforceable provision that most clearly matches the intent of the original provision and the remainder of these Terms shall continue in effect. 19. Notice; Consent to Electronic Communications When you visit this Site or send e-mails to us, you are communicating with us electronically. You consent to receive communications from us electronically. We will communicate with you by e-mail or by posting notices on this Site. You agree that all agreements, notices, disclosures and other communications that we provide to you electronically satisfy any legal requirement that such communications be in writing. 20. Entire Agreement You and Citywire are independent contractors. No joint venture, partnership, employment, or agency relationship exists between you and Citywire as a result of these Terms or your utilization of the Site. These Terms represents the entire agreement between you and Citywire with respect to your individual use of the Site. These Terms may not be assigned, transferred, conveyed, delegated, or granted by you to another party or person without the prior written consent of Citywire.
This communication is by Citywire Financial Publishers Ltd (“Citywire”) and is provided in Citywire’s capacity as financial journalists for general information and news purposes only. It is not (and is not intended to be) an any form of advice, recommendation, representation, endorsement or arrangement by Citywire or an invitation to invest or an offer to buy, sell, underwrite or subscribe for any particular investment. In particular, the information provided will not address your particular circumstances, objectives and attitude towards risk. Any opinions expressed by Citywire or its staff do not constitute a personal recommendation to you to buy, sell, underwrite or subscribe for any particular investment and should not be relied upon when making (or refraining from making) any investment decisions. In particular, the information and opinions provided by Citywire do not take into account your personal circumstances, objectives and attitude towards risk. Citywire uses information obtained primarily from sources believed to be reliable (such as company reports and financial reporting services) however Citywire cannot guarantee the accuracy of information provided, or that the information will be up-to-date or free from errors. Investors and prospective investors should not rely on any information or data provided by Citywire but should satisfy themselves of the accuracy and timeliness of any information or data before engaging in any investment activity. If in doubt about a particular investment decision an investor should consult a regulated investment advisor who specialises in that particular sector. Information includes but is not restricted to any video, article or guide content created or provided by Citywire. For your information we would like to draw your attention to the following general investment warnings: The price of shares and investments and the income associated with them can go down as well as up, and investors may not get back the amount they invested. The spread between the bid and offer prices of securities can be significant in volatile market conditions, especially for smaller companies. Realisation of small investments may be relatively costly. Some investments are not suitable for unsophisticated or non-professional investors. Appropriate independent advice should be obtained before making any such decision to buy, sell, underwrite or subscribe for any investment and should take into account your circumstances and attitude to risk. Past performance is not necessarily a guide to future performance.
Citywire Investment Warning