The ERSTE STOCK EM GLOBAL invests mainly in companies based or operating in the global emerging markets. The investment process of the fund is based on fundamental company research. We focus on companies with high quality and strong growth in our selection.
Turbulent first half year on the markets
The sentiment on the equity and bond markets was clearly down in the first half of 2022. Numerous factors are driving the current affairs at the moment. For example, inflation has increased significantly since the end of last year, which led the central banks like the Federal Reserve in the USA and the European Central Bank (ECB) to take action. In reaction to the drastic increase in inflation, the central banks tightened their monetary policy and heralded the end of low interest rates. The Ukraine war and increasing geopolitical tensions are also burdening share and bond prices.
The situation created by these three factors has increasingly led to concerns about economic growth, which is also reflected in the economic data. The development of the market environment in the second half of 2022 should therefore depend crucially on the path of inflation. Due to strong base effects, experts suggest that inflation might peak in autumn. The development of the Ukraine war from here on out will also remain an uncertainty factor for the rest of the year. Given this context, the risk of a recession is particularly high in Europe at this point in time.
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In the exclusive interview below about the first half of 2022, fund manager Gabriela Tinti talks about her assessment of the YTD performance of the fund and his outlook for the coming months.
Interview with fund manager Gabriela Tinti
What sort of performance did ERSTE STOCK EM GLOBAL achieve in the first half of 2022?
The emerging markets recorded a clearly negative performance in the first half of 2022. The ERSTE STOCK EM GLOBAL fund lost 9.19% of its value (in EUR) in the first six months of the year.
The various regions in the emerging markets delivered a mixed set of performances. Latin America came out on top at +8.3%. Asia, the biggest region, suffered under the aforementioned problems for most of the time, but in June the Chinese equity market started to recover. The Chinese macro-economic activity exceeded expectations, substantiating the hope that the second quarter would have been the bottom as far as 2022 GDP growth was concerned. The talks between China’s government authorities and technology managers seem to have fuelled expectations that the crackdown on technology companies could come to an end. Whereas the stock exchanges in South Korea and Taiwan have been negatively affected by the weak economic outlook, the Indian economy has proven robust, despite the fact that the growth forecast (GDP 2022/23e: +7.6%) has been revised downwards due to rising energy prices and increasing inflation.
The Middle East and Africa (EMEA) were also a mixed bag in the first half of the year. Russian companies were suspended from trading (for foreign investors) as a result of the sanctions against Russia, while the focus continued to shift to countries like Turkey and Saudi Arabia. Both stock exchanges (Turkey +10.6%, Saudi Arabia +9.2% in EUR) clearly outperformed the MSCI Emerging Markets and MSCI World indices.
How is ERSTE STOCK EM GLOBAL currently positioned? What is your focus in this fund?
Asia remains the growth engine of the global economy, dominating the ERSTE STOCK EM GLOBAL fund as the largest region. Given its strongly growing middle class, Asia will continue to rely on domestic private consumption and push innovations in technology. Therefore, we can see interesting investment opportunities in technology (IoT, cloud etc.), new infrastructure (expansion 5G, environment), healthcare, and consumer goods. Among our preferred themes are the accelerated take-up of clean energy in China which is laid down in the five-year plan that started in 2021. China’s agreement to achieve net zero CO2 emissions by 2060 requires comprehensive and swift investments in clean energy technologies and facilities for years to come. In addition, new infrastructure programmes for example for 5G network expansion, AI, clouds, the expansion of healthcare and others have been announced.
„We can see attractive investment opportunities in Asia and particularly in China.”
Gabriela Tinti, fund manager ERSTE STOCK EM GLOBAL
With an 80% weighting, Asia remains the biggest region in the fund. We increased the position in China again due to the improved economic data and re-opened positions across Asia, which contributed to the positive performance.
What is the outlook for the fund in the coming months?
The outlook and the attractiveness of emerging markets equities especially from China and Asia have improved significantly. In a keynote address on the BRICS economic forum on 22 June the Chinese President, Xi Jinping, promised that China would step up its macro-economic adjustment and take more effective steps in order to achieve the goals of the social and economic development in 2022. At the beginning of July, the Chinese government announced a USD 75bn infrastructure investment package as economic stimulus. The most recent macro data and the partial loosening of the zero covid policy support the positive forecasts for the second half of 2022. We believe that the loosening of the zero covid policy could contribute to the (faster) normalisation of the supply chains and the recovery of consumer spending.
Important legal note:
Past performance is not a reliable indicator of an investment’s future performance.