BlackRock
Updated 28 Apr 2023
Save Article

Disclaimer

This is a non-independent marketing communication commissioned by BlackRock. 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.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

From war, to inflation, to the legacy of the pandemic, 2022 has presented some extraordinary challenges for the world’s smaller economies. While it has still been possible to find opportunities, it is not a year that most investors would like to repeat. Nevertheless, there are reasons to be more optimistic about 2023.

A key feature of 2022 has been the rising cost of capital. Many smaller emerging market countries have raised rates fast in response to inflationary pressures– particularly those in Latin America and Eastern Europe. Chile has seen the highest rates since 1996,1 for example, while in Hungary rates have hit 13%.2 Often, these countries moved ahead of major markets and raised far faster.

This has been problematic in 2022, raising the cost of borrowing for companies and citizens alike. It has been particularly difficult for countries and companies that have a significant reliance on external capital. Equally, very few of these countries were in a position to give substantial handouts during the pandemic. Financially, the Covid period was very difficult, but has left governments under less financial pressure.

Shifting interest rates

However, for 2023, it means many countries could see a turn in the interest rate cycle ahead of major markets such as the US or Europe. These may be the first countries to cut rates. These countries tend to be very cyclical and do best when there is a shift in liquidity conditions. The point at which a country goes from a rate rising cycle to a rate cutting cycle can be an important moment. Stock markets often start to do well as they anticipate rates being cut. The trust has a higher weighting in selected banking stocks to capture this trend.

There are countries within the universe of the BlackRock Frontiers Investment Trust that have seen little impact from inflation. Vietnam, for example, has seen inflation at just 4.89%,3 while some countries in the Middle East have also been largely untouched by inflationary pressures. These countries are likely to be at a natural advantage in the year ahead.

Idiosyncratic trends

Frontier and smaller emerging markets are diversified, with separate and independent drivers for their growth. For example, Middle Eastern countries have benefited from higher oil prices. Countries in the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) are seeing the highest fiscal and current account balances in just under a decade.4 These strong government finances are trickling down into spending programmes. We have been investing in areas such as real estate, consumer and healthcare companies to take advantage of this growing trend.

A number of countries are also benefiting from the reopening after Covid. This has happened much later in areas such as Southeast Asia, but we are seeing tourism flows come back in countries such as Vietnam and Thailand.5 This may also be a potent impetus for the year ahead.

There are other, longer-term considerations. We are keeping a close eye on global politics for example. Many of the countries in which the trust invests have been studiously neutral in the growing geopolitical tensions between Russia, China and the US. This makes them well-positioned to benefit from any realignment of manufacturing. For example Vietnam has received huge investment from Korea.6

These smaller emerging markets still look very cheap versus global indices. Many of the holdings in our portfolio continue to deliver consistent growth in earnings, pay dividends and trade at attractive valuations. While much has changed in the global outlook, little has changed for many of the companies in our portfolio – they are delivering growth and yield at compelling valuations.

1 https://countryeconomy.com/key-rates/chile Country Economy – 31 January 2023
2 https://countryeconomy.com/key-rates/hungary Country Economy – 31 January 2023
3 https://tradingeconomics.com/vietnam/inflation-cpi Trading Economics – 30 January 2023
4 https://tradingeconomics.com/united-arab-emirates/current-account-to-gdp Trading Economics – 30 January 2023
5 https://www.cnbc.com/2022/06/23/travelers-return-to-southeast-asia-but-inflation-could-hurt-recovery.html CNBC – 23 June 2022
6 https://vietnamnews.vn/economy/1346450/viet-nam-hopes-to-attract-more-capital-from-south-korea.html#:~:text=In%20the%20first%20nine%20months,projects%2C%20worth%20over%20%243.8%20billion. Vietnam News - 18 October 2022

Risk Warnings

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.

Trust Specific Risks

Exchange rate risk: The return of your investment may increase or decrease as a result of currency fluctuations.

Counterparty risk: The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.

Currency risk: The return of your investment may increase or decrease as a result of currency fluctuations.

Emerging Markets risk: Emerging market investments are usually associated with higher investment risk than developed market investments. Therefore, the value of these investments may be unpredictable and subject to greater variation.

Frontier Markets risk: The Company invests in a number of developing emerging markets (“Frontier Markets”). Frontier Markets tend to be more volatile than more established markets and therefore present a higher degree of risk as they are less well regulated and may be affected by political and social instability and other factors.

Gearing risk: Investment strategies, such as borrowing, used by the Trust can result in even larger losses suffered when the value of the underlying investments fall.

Important Information

Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.

BlackRock has not considered the suitability of this investment against your individual needs and risk tolerance. To ensure you understand whether our product is suitable, please read the fund specific risks in the Key Investor Document (KID) which gives more information about the risk profile of the investment. The KID and other documentation are available on the relevant product pages at www.blackrock.co.uk/its. We recommend you seek independent professional advice prior to investing.

This material is marketing material. The Company is managed by BlackRock Fund Managers Limited (BFM) as the AIFM. BFM has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited. The Company’s shares are traded on the London Stock Exchange and dealing may only be through a member of the Exchange.

The Company will not invest more than 15% of its gross assets in other listed investment trusts. SEDOL™ is a trademark of the London Stock Exchange plc and is used under licence.

Net Asset Value (NAV) performance is not the same as share price performance, and shareholders may realise returns that are lower or higher than NAV performance.

The BlackRock Frontiers Investment Trust plc currently conducts its affairs so that its securities can be recommended by IFAs to ordinary retail investors in accordance with the Financial Conduct Authority’s rules in relation to non-mainstream investment products and intends to continue to do so for the foreseeable future. The securities are excluded from the Financial Conduct

Authority’s restrictions which apply to non-mainstream investment products because they are shares in an investment trust.
Investors should understand all characteristics of the funds objective before investing. For information on investor rights and how to raise complaints please go to https://www.blackrock.com/corporate/compliance/investor-right available in local language in registered jurisdictions.

Any research in this material has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy.

This material is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer.

© 2023 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS and iSHARES are trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.

MKTGH0223E/S-2697322

Welcome to Kepler Trust Intelligence

Please enter a valid email address
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid email address
{{item.msg}}
Please check your email. If an account exists you'll be sent instructions on how to reset your password.
To ensure that we are able to provide content which is appropriate for you, please tell us a little about yourself.
Please choose an option
{{item.msg}}
Please enter a company name
{{item.msg}}
Please enter a location name
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a platform
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a trust
{{item.msg}}
?
The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
Please confirm
{{item.msg}}
Please select an option
{{item.msg}}
See benefits
A free Kepler Trust Intelligence account allows you to access premium content including the ‘Kepler View’ – our verdict on the trusts we cover – and historical research so you can see how our view has changed over time. An account also unlocks useful facilities like the ‘follow’ button which lets you keep track of the trusts you’re interested in and as a logged in user you can also download PDFs of our research, and choose the layout of the page you’re reading to suit your preference. We will not share your details unless you give us permission to do so, and we won’t bombard you with emails – we only send one a week.
Please select an option
{{item.msg}}
Please enter your first name
{{item.msg}}
Please enter your last name
{{item.msg}}
Please enter a valid email address
An account already exists with this email - have you forgotten your password?
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid password
{{item.msg}}
How will this information be used? Your answers help us to tailor our content to relevant investment trusts, and to ensure that the asset allocation and portfolio strategy research we produce is appropriate to our userbase.
Our Website uses Cookies Cookies are small text files held on your computer. They allow us to give you the best browsing experience possible and mean we can understand how you use our site. Some cookies have already been set. You can delete and block cookies, but parts of our site won’t work without them. By using our website you accept our use of cookies. For further information please refer to the Kepler Privacy Notice.
Need help?

One more thing...

Did you know, you can 'follow' individual trusts on Kepler Trust Intelligence? Use the functions below to set up alerts and we'll send you research and updates on your chosen trusts.

Suggested trusts to follow

Browse all funds
Need help?
Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.