The Templeton Emerging Markets Investment trust (TEMIT) is positioning itself to capture a "widespread recovery" in emerging markets equities in the second half of 2018, as Franklin Templeton's £1.9bn investment company sets about "rebuilding the team".
Martin Currie's Andrew Ness joined TEMIT as a portfolio manager last week, to serve alongside lead manager Chetan Sehgal following the departure of long-standing managers Mark Mobius and Carlos Hardenberg, with the latter leaving the firm at the end of March.
Sehgal said the hire, as well as research and analyst appointments in China and Singapore respectively, represented efforts to rebuild the team.
He added: "We are augmenting the team to support the trust specifically."
The MSCI Emerging Markets index has fallen by 8% from its peak on 29 January to 20 July, according to FE, dragged down by a strengthening US dollar and fears of a global trade war.
As a result, TEMIT has struggled over the period, falling by 11.7%.
"The issue of trade and the sentimental impact of trade tensions has had its toll - markets are reacting," said Sehgal.
However, he countered: "Markets have clearly overreacted and from now on, emerging markets in the second half should see a widespread recovery.
"Some de-rating will happen because valuations are quite low and there should be some improvement from there on."
Sehgal said emerging markets equities performance will be fuelled by improved conditions for emerging market currencies.
He explained: "We are focused on the 2-year/10-year US spread. As that flatlines, it will be a relief for emerging markets. It is coming off lower and lower.
"Once it flatlines, the money market will start doing well."
Positioning for the rebound
Sehgal said he had made few changes to the portfolio, but had reinforced its "focus on sustainable earnings" and it is now "well positioned for the rebound".
Specifically, TEMIT has "added to some of its technology stocks", which is "still a sector of secular growth", according to Sehgal.
One such company is South Korean internet content service company Naver, of which Sehgal said the "earning power is very much still intact and cashflows are good".
Elsewhere, the trust has also scaled back its industrials exposure, with the sector disproportionately affected by emerging market woes.
TEMIT remained underweight China compared to the MSCI Emerging Markets index by 7.2%, but Sehgal states the country is "still the largest opportunity in emerging markets.
China, the largest weighting in the MSCI EM index, has struggled amid trade war fears, with the MSCI China index falling by 15.9% between 1 March and 20 July, according to FE.
Sehgal acknowledged the impact of trade tariffs on Chinese autos hurt the trust after its "large holding" in Shenyang-based Brilliance "came off quite significantly this year".
However, he added troubles in emerging markets have yet to have a significant impact on earnings expectations in China and a number of other markets and "barring one or two names", the trust has "done reasonably well".
Sehgal said: "By and large, whatever we have done has added value, when compared to the existing portfolio in December."
TEMIT has returned 1.3%, 51.8% and 36.9% over one, three and five years to 22 July respectively, according to FE. The IT Global Emerging Markets sector has returned 3.3%, 33.6% and 30.3% over the same time frame.
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