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David Kimberley
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Updated 17 Nov 2023
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Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Fidelity Emerging Markets . The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

The emerging markets universe can be intimidating at first glance. According to the MSCI’s classification, 24 countries make up that universe, spanning five continents and a myriad of industries. What’s more, these constituent economies can look very different in form to those that investors are more familiar with and the industries that dominate their markets can be similarly differentiated from their developed market peers.

However, inherent in this difference is a potential opportunity. Firstly, such a distinctive selection of stocks offers clear diversification potential for most UK private investors, who according to popular wisdom are typically overweight the US and UK (though each individual portfolio is different so it’s worth checking yourself).  

Equally, the unique profiles of the diverse emerging markets throw up compelling themes and potential opportunities. As we discussed in our recent strategy article, the context for emerging market investors is constantly evolving, throwing up new ideas all the time. It would be nigh-on impossible for most private investors to stay fully abreast of these changes. Instead, trusting some expert hands to steer the ship could be an investor’s best port of call.

While there are arguments for a host of different managers in this sector, breadth and depth of resource is certainly of benefit within such a diverse market. Fidelity Emerging Markets (FEML) boasts access to a team of around 50 analysts covering emerging markets around the world, alongside the management oversight of lead manager Nick Price and co-PM Chris Tennant.

The broader Fidelity analyst team is able to carry out about 20,000 company meetings per year, covering much of the relevant markets available to them. Along with the research analysts, both Nick and Chris carry out multiple research trips through the year, gaining an on-the-ground understanding of the opportunities available in their markets.

In April 2023, Fidelity’s emerging market research team visited Mexico. The trip emphasised how the nascent trend of nearshoring was set to be a positive impetus for businesses in the country, as companies in the US increasingly look to bring their manufacturing closer to home. The team was able to visit the operations and headquarters of companies across industries, gaining comfort in their investment theses and carrying out detailed due diligence on existing holdings.

Following the trip, Nick and Chris initiated positions in a number of companies, including Grupo Mexico Transportes, a railroad company with exposure to the trend of nearshoring, and also high-quality staples names tortilla maker Gruma.

In the same month, the team travelled to Poland. The country has a deep stock market for what is a relatively small country and, like Mexico, is also seeing a positive boost from shifting supply chains, with for example technology company Intel recently building a manufacturing plant in the country.

While foreign direct investment (FDI) flows into the European Union have fallen over the last year, those flowing into Poland have risen. The team has added several positions in Polish stocks, including financial services business Kruk and AutoPartner, an auto parts company with a strong balance sheet and clear potential for expansion.

In July, members of the emerging markets research team visited Greece. The trip helped them to understand how the banks in the country are set to benefit from a market friendly, stable government and what could be a huge investment cycle ahead with an educated workforce earning average wages that are only 65% of the level of those in the eurozone with scope to increase in the medium term.

The FEML managers particularly like the Greek banking market which is consolidated, underpinning high margins. At the same time, the economy is under levered and economic activity should also benefit from growth-oriented government policies and the EU’s recovery funds. FEML has positions in the National Bank of Greece and Piraeus Financial which the managers expect to benefit from these positive tailwinds.

On the ground visits like these are a key part of the FEML managers’ investment process. However, they are also one component of wider research that is undertaken by Fidelity’s huge emerging markets analyst team.

Whereas some fund managers may only have coverage of a specific region, FEML has strong analyst coverage across every emerging market continent, providing the managers with the potential for an informational edge over their peers.

Emerging markets may indeed seem intimidating at first glance. But the breadth of knowledge that the FEML managers have at their disposal means they are more than capable of taking advantage of the opportunities that they contain.

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