CEF Insights: abrdn On Emerging Markets, Supply Chain Shifts And Rising Rates

Easyturn

After immoderate challenging years, nan reopening of China, proviso concatenation shifts, and different marketplace factors constituent toward imaginable opportunities successful world emerging markets for investors seeking income and semipermanent appreciation. In this CEF Insights Podcast episode, abrdn Senior Investment Director and Portfolio Manager Nick Robinson shares views connected these opportunities and much views connected nan existent market.

abrdn is simply a world finance institution pinch 11 closed-end costs including nan abrdn Emerging Markets Equity Income Fund (NYSE:AEF). The finance extremity of nan money is to supply some existent income and semipermanent appreciation by selecting companies successful increasing economies pinch beardown governance and straightforward financials.

CEFA:

Welcome to CEF Insights, your root for closed-end money accusation and education, brought to you by nan Closed-end Fund Association. Today we are joined by Nick Robinson, portfolio head pinch nan Emerging Markets Equity Team for abrdn. abrdn manages a family of 11 US closed-end funds, including abrdn Emerging Markets Equity Income Fund, ticker AEF. Nick, we are happy to person you pinch america today.

Nick Robinson:

Well, acknowledgment very much. It's a awesome pleasance to get nan opportunity to speak to you today.

CEFA:

Nick, abrdn is an progressive head pinch a bottom-up attack that is focused connected fundamentals. Can you talk nan finance strategy for emerging marketplace equities and really that applies to AEF?

Nick Robinson:

Yeah, sure. It'd beryllium a pleasure. So nan finance strategy we person is fundamentally focused connected picking value companies wrong emerging markets and past holding them for nan agelong term. When we deliberation astir value companies, we're really reasoning astir 3 different aspects of businesses. So those businesses which person bully guidance teams and beardown governance, which is peculiarly important successful emerging markets wherever you're often not protected by ineligible frameworks. We besides for illustration companies which are successful industries which are growing, wherever there's a bully tailwind of imaginable maturation down nan company. That's ever rather adjuvant arsenic a semipermanent investor.

And past besides we are looking for companies pinch beautiful straightforward financials. We're very happy to put successful companies pinch lazy aliases alleged lazy equilibrium sheets wherever they mightiness person nett rate positions. So it's really uncovering companies that really fresh into that value facet and past holding them complete nan agelong word and trying to beryllium reasonably diversified done emerging markets. So they're trying to beryllium comparatively diversified successful position of some countries and sectors and person astir of nan consequence successful nan portfolio travel from nan stocks themselves alternatively than large benchmark positions against countries, for instance.

CEFA:

What is nan advantage of this type of attack arsenic you activity retired opportunities successful little developed countries?

Nick Robinson:

Well, I deliberation going backmost to nan value facet of investing, I deliberation that's rather important successful emerging markets successful that emerging markets thin to beryllium a spot much volatile, beryllium it owed to nan economical rhythm aliases nan governmental cycle, which tin lead to rather ample changes successful nan finance environment. So by choosing value companies which don't person excessively overmuch links pinch authorities aliases person beardown equilibrium sheets that equip them to past nan cycle, past that's reasonably captious fixed nan precocious strength aliases magnitude of those cycles.

And past also, arsenic I alluded to, governance is simply a beautiful cardinal rumor successful emerging markets and that astir companies, they thin to beryllium controlled by families aliases individuals aliases azygous entities, whereas successful much developed markets for illustration nan US, nan shareholder guidelines tends to beryllium a spot much diffuse. So that intends combining that pinch nan weaker ineligible regulations and frameworks wrong emerging markets, which whitethorn not activity erstwhile you request them to, investing alongside those entities wherever you consciousness comfortable being a number investor is reasonably key. So I deliberation that's really important successful position of having nan progressive attack towards emerging markets.

CEFA:

Nick, nan US Federal Reserve aggressively raised liking rates for overmuch of 2022 and different developed markets followed. Globally ostentation has been precocious and economical maturation has slowed. We besides person important geopolitical tensions that person added to volatility. How person these world challenges impacted emerging marketplace economies arsenic good arsenic their equity markets?

Nick Robinson:

Yeah, well, it's a bully question. It's been beautiful challenging mates of years for emerging markets. Emerging markets really were rather early to waste disconnected comparative to developed markets, really occurring correct astatine nan extremity of 2020 erstwhile markets started weakening. So it's been a beautiful reliable clip for emerging markets. Of course, what happens erstwhile nan Fed starts raising rates is that emerging marketplace countries mostly person to do nan aforesaid successful that if they don't, past they thin to get a batch rather fierce superior formation from their countries, which tin origin each sorts of fiscal issues.

I deliberation what's been rather bully this rhythm is that emerging marketplace countries were mostly rather early to commencement raising rates overmuch earlier nan Federal Reserve did. So I deliberation that put them successful rather a bully position past twelvemonth not to suffer those superior withdrawals that we've seen successful anterior cycles, surely not to nan aforesaid magnitude that we've seen before. So coming guardant to today, things are successful a amended position, but we are opening to spot signs that we whitethorn get immoderate easing from cardinal banks and emerging markets going forward, which would beryllium beneficial to growth. But surely you're correct to constituent out, it's been a beautiful reliable mates of years for EM.

CEFA:

Do you expect these issues to person longer word impacts connected these economies?

Nick Robinson:

No, I don't deliberation so. I mean, it's portion of nan rhythm really. I mean, it's been a beautiful sadistic rhythm successful position of nan magnitude of nan complaint hikes coming retired of nan US. But yeah, I don't deliberation this has really impacted nan agelong word outlook for EM. And surely comparative to different cycles we've seen, I don't deliberation it's been a peculiarly bad 1 from nan discourse of emerging marketplace countries.

CEFA:

Are you seeing shifts successful nan world proviso chain? And if so, what countries do you expect to use from these shifts? Are location peculiar industries that are aliases will thrust these changes?

Nick Robinson:

Yeah, I mean, we are seeing rather large shifts successful nan world proviso concatenation really arsenic a consequence of some nan pandemic wherever nan benignant of conscionable successful clip proviso chains that nan world had go very accustomed to started to fail, and past besides waste and acquisition tensions. And nan inclination towards de-globalization has besides impacted proviso chains. The thought that really it's not perfect to person your manufacturing located galore 1000 miles distant from your extremity markets erstwhile location could beryllium each sorts of problems successful position of getting those products to nan extremity markets. And besides immoderate governmental tensions we've seen arsenic well, which made that much challenging.

So yeah, we are seeing a rejigging successful proviso chains, peculiarly nan tech sector. Big semiconductor manufacturing companies, which historically person been group up successful comparatively debased costs jurisdictions are now moving their manufacturing elsewhere. So we've seen a batch of announcements of manufacturing moving to nan US from Asia. That comes pinch a higher cost. But against that, you don't person specified precocious consequence successful position of that proviso concatenation by moving it person to a market. So we're seeing a adjacent spot of that.

In position of which countries benefit, well, manufacturing is moving retired of China generally, truthful that's benefiting immoderate of nan surrounding Asian countries, peculiarly Vietnam, which has done good retired of that. And past of people Mexico arsenic good has seen rather a large boost to their system from manufacturing moving location successful bid to beryllium person to nan extremity marketplace of nan US. So yeah, there's surely a inclination that's ongoing and that surely has thrown up immoderate finance opportunities.

CEFA:

Nick, you lived successful Brazil for respective years. They person immoderate important governmental changes pinch nan results of nan caller statesmanlike election. How do you spot this impacting nan business situation successful Brazil arsenic good arsenic opportunities for starring companies successful that market?

Nick Robinson:

Yeah, location ever seems to beryllium a batch of opportunity successful Brazil, but it's only comparatively infrequently that that turns into existent existent maturation for companies. And I deliberation this predetermination has been a reasonably reliable 1 for Brazil successful that location had been rather a batch of optimism astir President Lula arsenic we went into nan election, and surely it looked for illustration he was going to beryllium a much centrist successful position of his governing instantly anterior to nan election. But past much recently, it appears that he's reverted to nan benignant of Lula of old, nan type of Lula that was pulling nan strings backmost successful 2012 erstwhile President Dilma was successful office. And that's not been awesome for markets successful Brazil. I mean, that's fundamentally meant little fiscal discipline, which is thing that Brazil desperately needs successful bid to power rates and inflation.

So I deliberation things person been a spot tougher successful Brazil, but that doesn't mean there's not immoderate bully opportunities there. Those companies that are bully astatine passing done inflation, which is galore successful Brazil, should proceed to do well. And of course, pinch Lula's inclination to walk and put much money successful nan pockets of citizens should beryllium beautiful bully for home consumption. So there's a batch of home depletion companies which are very good, that you tin bargain successful Brazil, which we deliberation should use from this environment.

CEFA:

Emerging markets are often referred to arsenic almost a azygous entity, but countries and regions tin person very different economical scenarios and marketplace dynamics. Are you uncovering equity valuations crossed emerging markets to mostly beryllium astatine charismatic levels aliases does it alteration betwixt countries and industries?

Nick Robinson:

Yeah, I mean, you do often get rather large divergences successful valuations betwixt countries, specifically wrong emerging markets, depending connected which markets are seen arsenic being peculiarly basking and which person gone retired of favor. And those thin to move successful cycles to immoderate extent, though I'd opportunity location are immoderate countries which are ever beautiful inexpensive because they're seen arsenic being rather risky to put in, places for illustration Turkey, for instance. But yeah, broadly speaking, valuations are very charismatic astatine nan infinitesimal successful emerging markets, peculiarly comparative to developed markets.

CEFA:

Where are you seeing nan champion opportunities arsenic we are astatine nan opening of 2023?

Nick Robinson:

So I deliberation nan really absorbing point that's going connected successful emerging markets astatine nan moment, and it's astir apt been going connected for only 2 aliases 3 months, truthful it's still comparatively early days, has been nan opening up of China. So you'll callback that China had a very fierce zero-COVID argumentation that was very abruptly and rather unexpectedly relaxed astatine nan extremity of past year, and frankincense nan system is now opening up. Consumers are fundamentally retired and astir spending more, malls and supermarkets and cinemas are each filling up.

So I deliberation that's fundamentally giving an atrocious batch of opportunities for investments that person a script wherever net expectations for Chinese corporates are now heading up rather quickly astatine nan aforesaid clip that different economies are either slowing down, not rather successful recession yet, but surely net estimates elsewhere are falling somewhat. So surely nan opportunity today, I think, successful China is rather exciting, peculiarly fixed really that marketplace has sold disconnected an atrocious batch complete nan past mates of years, and valuations person go very reasonable.

CEFA:

How is nan AEF portfolio presently positioned?

Nick Robinson:

Yeah, truthful AEF is presently positioned really to use from that China reopening that I highlighted. So yeah, nan portfolio has a decent vulnerability towards China and Hong Kong. And past nan portfolio is besides positioned really conscionable to use from nan increasing mediate people wrong emerging markets and nan spending powerfulness that they have. So a batch of depletion stocks wrong nan mix. And past we've besides positioned nan portfolio to really return advantage of immoderate of nan large longer word trends that we spot successful emerging markets. So that's things for illustration renewables. So nan benignant of move towards nan zero c transition. So investing successful those companies, which, for instance, make star panels aliases are successful companies which supply earthy materials to beryllium successful that proviso chain. And that's an area wherever I deliberation is peculiarly breathtaking for emerging markets, fixed immoderate countries' power wrong that proviso concatenation for renewables.

CEFA:

Nick, really do you spot this emerging marketplace equity strategy champion positioned successful an investor's diversified portfolio?

Nick Robinson:

Well, I deliberation emerging markets are coming into rather an absorbing shape really astatine nan moment. I deliberation a batch of investors person not paid overmuch attraction to emerging markets complete nan past fewer years fixed nan capacity of developed markets, peculiarly nan US, and nan spot of nan dollar arsenic good has meant that arsenic those trends person been ongoing, emerging markets person benignant of been overlooked to a definite extent, fixed their mediocre performance.

But I would opportunity that is changing now successful that ostentation seems to beryllium rolling over, rates are being accrued astatine a slower pace. And pinch China reopening, there's rather a beardown net statement wrong emerging markets. So yeah, I deliberation we are successful a play wherever nan outlook for emerging markets comparative to developed markets is changing. So I would dream that investors are reasoning astatine slightest of looking astatine emerging markets again arsenic a bully spot to diversify equity allocations.

CEFA:

Nick, convey you for taking nan clip to stock your thoughts pinch america today.

Nick Robinson:

You're welcome. It's been fun.

CEFA:

And we want to convey you for tuning into different CEF Insights podcast.

The Closed-End Fund Association (CEFA) is nan nationalist waste and acquisition relation representing nan closed-end money industry. A not-for-profit association, CEFA is committed to educating investors astir nan galore benefits of these unsocial finance products and to providing a assets for accusation astir its members and their offerings.