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Key takeaways
- Third quarter of 2024 saw positive returns in emerging markets (EM)
- Coordinated stimulus announcement in China drove positive equity returns
- Technology stocks struggled amidst a weaker outlook for memory
- US Federal Reserve announced a larger-than-expected rate cut of 50 basis points
Market overview
EM performance in the third quarter saw a significant policy pivot from China with coordinated monetary, property, and equity market changes. EM witnessed near double-digit growth, driven by a >20% return in China.
Monetary policy easing in the US, where the Federal Reserve announced a 50 basis point rate cut, led to strong performance from the more interest rate sensitive countries in EM, such as those in Southeast Asia (Indonesia, Thailand, and Philippines). Korea and Taiwan were more muted, as we saw some consolidation in large-cap Asian technology stocks, which are concentrated in these markets.
Latin American markets were differentiated with reasonable performance coming out of Brazil (up 7%) versus Mexico, which was down 3% amid investor concerns following the passage of a controversial judicial reform.
MSCI EM sector performance Q3 2024 
Source: FactSet, as at 30 September 2024. Data in US$.
Top ten holdings by active weight
| Stock | Country | Sector | Portfolio(%) | Index(%) | Active(%) |
|---|---|---|---|---|---|
| Samsung Electronics | Korea | Information Technology | 6.4 | 2.7 | 3.7 |
| Tencent | China | Communication Services | 8.0 | 4.5 | 3.5 |
| HDFC Bank | India | Financials | 3.9 | 1.1 | 2.8 |
| ICICI Bank | India | Financials | 3.6 | 1.0 | 2.6 |
| SK Hynix | Korea | Information Technology | 3.5 | 0.9 | 2.6 |
| Titan | India | Consumer Discretionary | 2.7 | 0.2 | 2.5 |
| AIA | Hong Kong | Financials | 1.9 | - | 1.9 |
| Antofagasta | United Kingdom | Materials | 1.9 | - | 1.9 |
| WEG | Brazil | Industrials | 2.0 | 0.2 | 1.8 |
| China Merchants Bank | China | Financials | 1.9 | 0.2 | 1.7 |
Martin Currie as of 30 September 2024. Data shown is for the Martin Currie Global Emerging Markets representative account. Holdings are subject to change.
Portfolio discussion
Consumer discretionary was the most additive sector, driven by a combination of strong stock selection and asset allocation. In particular the broader strength in Chinese equities supported this, especially our holdings in this sector such as Meituan, JD.com and Alibaba, which benefitted from improving confidence following the stimulus announcements by the Chinese authorities. From a country perspective, China and Hong Kong were the most additive, driven by the broader equity rally and improved macroeconomic outlook. Although the stimulus announcement was late in the period, it was the higher quality part of the market which exhibited the most strength, leading overall to strong stock selection driving our Chinese/Hong Kong portfolio returns.
Our overweight to technology names was largely detractive from portfolio performance during the third quarter. While the year-to-date performance in this sector has been strong, there was weakness in Q3 especially within the semiconductor industry which has been impacted by dwindling sentiment in the overall memory market. The resultant profit taking was due to the weaker outlook. Key detractors from strategy performance in this sector included Samsung Electronics, SK Hynix, TSMC and Globalwafers. The concentration of technology and particularly held semiconductor stocks in Korea led to this being the most detractive country.
Portfolio activity
We added three companies to our clients’ portfolios:
PKO: An established banking leader in Poland with a return profile that has structurally improved following the digestion of Swiss Franc mortgages. Poland is benefitting from strong Gross Domestic Product (GDP) growth, loan growth, and benign asset quality. The bank is one of the best capitalised in the Central Eastern European region.
MediaTek: Fifth largest fabless semiconductor company in the world with a historical focus on the Chinese smartphone industry. The company is exposed to multiple long-term growth engines ranging from its exposure in enterprise ASIC, auto semiconductors, and finally a large-scale shift in the smartphone replacement cycle as a result of AI Edge.
Apollo Hospitals: India's largest hospital company and owner of the country’s largest branded pharmacy network. There are significant structural growth opportunities for hospitals in India, where there are just 0.5 beds per 1,000 population (vs. 4.2 in China and 2.1 in Thailand, for example).
We exited six companies during the period:
Credicorp: Unable to separate itself from the underlying economic performance of Peru, which has continued to disappoint on growth amid a challenging political backdrop. Ultimately, we feel there are better opportunities available and this position is a source of funding.
Naver: The companies growth profile is normalising from increased competition across its key product areas, most notably ecommerce and advertising. Capital allocation has been unclear following the appointment of a relatively inexperienced management team and the subsequent acquisition of Poshmark.
Orbia: The old-economy, developed-market business mix has been impacted by cyclical headwinds. Whilst the business could recover profitability from here, its fate lies with end market recovery rather than management direction. Although its valuation is undemanding, we believe there are better opportunities elsewhere.
PT Telkom Indonesia: Despite a prolonged period of rational competition and market consolidation, PT Telkom Indonesia has repeatedly failed to deliver the level of growth we had anticipated. On the mobile side, the monetisation of data has been largely offset by the continued decline in legacy revenues, while Indihome has reached saturation much quicker than we expected. From a portfolio perspective, the stock has also failed to deliver on its defensive characteristics.
Shanghai Fosun Pharmaceuticals: Fosun has a long track record of creating value by growing and spinning out healthcare businesses; however, in recent years its return on equity (ROE) has fallen to single digits and debt levels have risen (a decrease in quality characteristics). Management has also struggled to articulate a clear strategy to return the business to double-digit ROE.
Xinyi Solar: Oversupply in the solar module supply chain has left all companies vulnerable to any slowdown in demand growth. We believe demand will be challenged by bottlenecks in China's transmission network, leading to further price disruption across the supply chain.
Important Information
The information provided should not be considered a recommendation to purchase or sell any particular strategy / fund / security. It should not be assumed that any of the security transactions discussed here were or will prove to be profitable.
This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’), authorised and regulated by the Financial Conduct Authority. It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.
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