Cherry Reynard: It feels like a good time to be talking about emerging markets. To date emerging markets have been relatively resilient. But there's been a lot going on beneath and the outcomes for different markets have been very disparate. 

So, to discuss all this and the outlook from here, we have Viktor Szabo, who is a manager on the Aberdeen Latin American Income Fund, Samantha Fitzpatrick, who's an Investment Director on the Global Equities team, and Elizabeth Kwik, who is a manager on the Aberdeen China Investment Company. 

Let's start with a quick recap of the past 12 months. Victor, if we could start with you on Latin America, which feels topical, given the re-election of Lula in Brazil, the region's economies appear to be doing relatively well. So perhaps you can give us an overview.

Viktor: Yes, thank you Cherry. Indeed, it was quite an interesting period, both in terms of politics and in terms of the economy, regional and global. 

In terms of politics, we had the elections across the region, first in Peru than we had in Chile in Colombia. And then, as we mentioned, in Brazil, which were the second round - just completed this weekend. And the general theme was the move to the left, which resulted in some market volatility. We have seen sell offs, especially in the Andean countries, in the run up to the election. And sometimes even afterwards. It's quite interesting given that - I think there's still a perception of LATAM ‘left’ as being something of a kind of ‘militant communist quasi dictatorship’ leniency, although the left we are talking about today is completely different from what it used to be like 20,30 years ago, in LATAM, I think it's more a reflection of some of those social grievances, which are widespread, not just I think, in the LATAM region, but globally, people are not satisfied with the level of public services they're receiving, they want better health care, better education. COVID showed them that the state can provide wider social net, more support, so they want to see some of that. And it's, it's understandable. But what we have seen is that in terms of economic policy, these are not the far left leaders and parties who are coming in charge, we see quite sensible and respected finance ministers being appointed. And most of the policies, even though they do try to make a move towards more provision of state services, they are not reckless in their nature. And they're not - those countries are not at risk of really destroying the fiscal framework. 

Now, looking beyond that, what's happening in the economy, we have seen kind of continued recovery after the COVID shock, decent growth. There's some variation between the countries, I mean, we still have Colombia overheated economy, Chile slowing down quite rapidly, but more generally, and we're seeing growth around 3, 4% real GDP growth, which, not spectacular, but I think quite acceptable. We have seen a decent recovery in labour markets. If you look at Brazil, the unemployment rate is much lower than before COVID. And even in other countries, we are mostly at around pre COVID levels. Obviously, the region is not immune to the global shocks. And we do expect some more deceleration of economic activity, but nothing really seriously recessionary to be fearful of, so the region is I would say doing well.

Cherry: Elizabeth, if we could turn to China now, I mean, it has been a torrid time for Chinese markets. And actually the broader Chinese economy with slowing growth and the ongoing COVID crisis. I guess the overwhelming sense is it as bad as it looks? Perhaps you could explore that a little bit. 

Elizabeth: Yeah, so there has definitely been no shortage of negative news flow around China in recent months. I think domestically the two main concerns that we are seeing is firstly, how long they will stick to this zero COVID policy. And secondly, is you know what, what's going on in the real estate and what will the ramifications or implications of that be? 

So, when it comes to COVID, I would say that first of all, the government does have its reasons for continuing to adopt this approach. So, if you look at the number of ICU beds available per 100,000 people in China, it is very low still compared to the rest of the world and developed countries. And they're still working on a domestic mRNA vaccine. So, I kind of understand where they're coming from. But of course, we do hope that they will, you know, move towards a reopening in the coming months. And I think positively, we have seen that even though they are continuing to stick with this dynamic zero policy, over the past few months, you have seen that they have been adapting the way that they implement the zero COVID policy. Lockdowns, although they still take place from time to time, they are not as lengthy or not as stringent perhaps you might say, as what we saw at the very beginning of the pandemic, they are trying to make things more efficient with quicker testing and identifying of any cases so that you know, people can continue to move about domestically. And if you look at the flights, they have been putting back more international flights into China. So, you can see that there is the desire to reopen the economy, they just tried to do it in a way that you know, is, you know, balances the welfare of the people and what the healthcare system can manage. So, on that front, we do expect that in the next year or so we will see a move towards gradual reopening of COVID. 

And on the real estate front, I think what the government is doing, we can give them a little bit of credit in persisting with their drive to deleverage the economy. This has been going on for over two years now so it's not new. But I think what we've seen is that the government are really quite serious this time around. So we've seen quite a number of large developers running into struggles, and that has created quite a lot of panic about potential contagion risk in the economy, what that will do to the banking sector. Overall speaking, I think, in terms of contagion risk, it's probably not as bad as what you're reading, if you look at the bank's exposure to developers or mortgage loans, it is in the single digits. And, you know, for the Aberdeen China Investment company, we are just looking to invest in the very best of these banks, or even you know, where we have exposure to real estate. So we're very selective in terms of what we own. And not everything is of bad quality. And on the other front, I think, you know, this deleveraging is a good thing for the long-term health of the Chinese economy. And with real estate becoming a smaller part of the pie, it does provide opportunities elsewhere. So, for instance, for equities, for other asset classes, people are looking to reallocate their money. And that's not necessarily a negative thing for the economy. I think fundamentals when we look at what companies are reporting, as they're now just reported, their third quarter results, you know, your question of, you know, are things really as bad as, as it sounds? I would, you know, probably lean towards a no, if you look at the earnings of companies, quite a large majority of them have been able to report earnings that are in line with, if not better than expectations, partly because expectations have been come so low. But I think, you know, the best companies are still able to make use of this economic cycle, to consolidate their position, to continue building on investing and gaining share. And we have a number of those in our portfolio. So, with valuation so low now, I think, definitely reflective of the weaker sentiment, which is, you know, perhaps a little bit more fearful than what the fundamentals suggest.

Cherry: Samantha, I wonder if you can put emerging markets kind of in their in their global context, because you're obviously looking across the world. I mean, how have emerging market companies held up relative to their international peers.

Samantha: Sure. The answer, and I'm sure you'll know this from listening to Viktor and Elizabeth is that there has been huge dispersion within the underlying countries that make up emerging markets, and then breaking that down further, and the individual companies, which make up even those local indices.

So within Murray International, which is a Global Trust, we do have exposure to emerging markets, we have exposure to nine different countries, if you're looking at just country of listing, but actually, if you drill down further, the diversification is even greater again. So, what we're really trying to do in a global context is take advantage of when just certain regions or certain countries fall out of favour, for whatever reason, and drill down into the companies which can perform despite the odds despite the overriding factors that are affecting the region. And I think it's a really good time to be a stock picker, actually. And you see it from the other way as well. Sometimes, an emerging company that's listed in Europe might be getting hit hard. So having that flexibility to move around the regions, is really quite powerful just now and we’re trying to use that to your advantage also.

Cherry: My impression for emerging markets as a whole is that they haven't been as fragile this time, you know, and, and I think, you know, recently in Latin America, they've digested a lot of political news without quite the turbulence that, you know, has been seen historically. I mean, Viktor, I wonder, can you talk a little bit about where that extra resilience is coming from as you see it?

Viktor: So yes, it's quite interesting how resilient emerging markets were, especially if you look at what happened over the last 12 months. I mean, we had this huge global inflationary shock. We had the war in Ukraine and its consequences on risk assets, we had the Fed tightening quite aggressively, and not just the Fed. So, we have all the ingredients for quite shaky markets. And indeed, we have seen significant sell offs across both fixed income and equities markets and some of that spreading given even to private markets where the price discovery is more difficult. Yet if you look at the performance and I just checked for the last year, our Aberdeen Latin American income price is up 20%. Yes, that is definitely a resilience and why is that? I mean, emerging markets, I think have improved in terms of their sovereign balance sheets. If you remember back a few years ago, when we had the big taper tantrum fear and the term ‘no fragile five’ was coined. We were looking at major emerging market economies running large twin deficits, large budget deficits and current account deficits. If you look at emerging markets today, most of these countries have significantly reduced their external imbalances. Some of those ‘fragile fives’ are now running surplus in their current account. So, they're - not just the balance sheet has improved - but also policymaking. And here, I would highlight the independence of the central banks, most emerging market central banks are now legally independent, they have shifted to inflation targeting they have adapted, quite robust approach to not just monetary policy, but also to financial stability. We have seen that the central banks in emerging markets reacted much faster well ahead of their developed market peers. Brazil central bank has started to hike rates already in March last year, well ahead of the curve as we say, well ahead of the others. And if you look at inflation in Brazil, it's coming down, it's now just slightly above 7% - enviable for many emerging and developed economies. 

Even if you look at Mexico, which has quite close economic ties with the US and that's why their policy cycles typically quite synchronised with those of the US, the Central Bank of Mexico started their rate hiking cycle nine months before the Fed had its first move. So that helped to build some protection against markets volatility. And once again, if you look back to these 12 months, we are now looking at, most Latin currencies actually are up against the mighty dollar. Brazil has been one of the best performing currencies in the world and if you compare with Euros or Sterling, then obviously the outperformance is even bigger. So, yes, there is inherent resilience. I'm not saying that these emerging markets are completely shielded from the difficulties in the world, but they are much better place than they were even six, seven years ago.

Cherry: I wonder if we can look at the portfolios in a bit more detail now. Perhaps we could go round the kind of virtual table and just talk a bit about how you've been positioned during this period of volatility and how you sort of defended the portfolio's against that. Elizabeth, could we start with you on that?

Elizabeth: Yes. So, in terms of portfolio positioning, we have really tried to look for the best quality companies that can withstand both domestic and external pressures. So, we have identified five key investment themes for the Trust that we believe are aligned with the government's strategic directives and policy direction, and where there is opportunity for long term growth. 

So, the first one is aspiration. So, we believe that the population will continue to get more affluent. And you know, with people looking to upgrade their standard of living, the way that they live, and the goods and services that they consume, will, will be upgraded. And we have plenty of companies within this space that are aligned with this theme, many of them domestic Chinese brands, targeted at the mass population, very defensive, from the results that we've been seeing over the last one to two years, they've been gaining share from international brands, they've been able to slowly raise, you know, their prices, because they have the equity and the bargaining power. So, I think one question that we often get on this topic is, you know, the issue of common prosperity that has been mentioned by the Chinese government, does this mean that, you know, the government doesn't want people to do well. And in our view, that's really not the case. We understand that, as you know, the government, they want people, they have a goal of having a moderately prosperous society by the year 2035, they want their people to do well, to enjoy good things. But at the same time, they don't want this to create a large gap in society, a big income distribution gap. So that has to be managed. And that's very understandable. So, we tried to position ourselves in a way that captures this long-term consumption upgrade in a, in a sort of stable way over the long term

Two other themes where we are finding good opportunities are in the areas of green, and digital. So, both of these are very much aligned with, you know, the government direction, they want to be carbon neutral by the year 2060. And with all the geopolitical noise that we've been seeing, between the US and China, I think China's need and the urgency for self-sufficiency, localization, that has really been pushed forward. And that is especially evident in, you know, a sensitive sector like technology. So they're putting a lot of resources into these sectors, trying to build up their homegrown technology. And, you know, in, in the technology space, in the digital space, we have names in the portfolio that play to themes like cybersecurity, like having their own cloud so that they don't have to use a foreign cloud. All these types of things are, you know, areas where we see growth, in, you know, growth well above 30%, even in the current environment, which, you know, investors may not know, still exist, at the moment, given how bad things seem, but actually, there are plenty of opportunities. 

Similarly, in healthcare, with, you know, an ageing population, there is an increasing need for these, these services. And China wants to rely on their own health care technology, not that of Western countries. So we've been positioned, you know, in a way that is quality that is not as susceptible to external noise, just companies that are focused on what they do best, but at the same time, are aligned with the broader policy direction and trends, because given the sensitivity of the times, we definitely don't want to be, you know, positioned on the opposite side of that.

Cherry: Samantha, same question to you, what does your positioning in emerging markets look like?

Samantha: Sure. So, we have two different elements to this. We have emerging markets bonds within Murray International, this is absolutely where we just see opportunities at any particular point in time. And that's currently 7% of the gross assets of the Trust. And that has come down quite markedly actually over the past couple of years. And the reason that that's come down is that we have had the opportunity to sell some of these bonds above par, and been able to get a yield uptick from investing that in equities. So, some of the bonds, the Brazilian corporate bonds, for example, were trading at just crazy prices. You know, I think the valley bond we sold at about 140, about two years ago now. So we have been taking that weighting down and reinvesting that actually more in some European equities, and some US equities as well. And we were able to get a yield uptick and that opportunity for more capital growth looking forward. But we still have a range of small positions, it's always small positions we take with the bonds, so it's spread over I think, 16 different names currently. It's a mixture of high-quality corporates and some sovereign bonds as well. The most recent one we sold was one of the Mexican corporate bonds just in October there. It was approaching maturity. And we had a real opportunity because the currency had been so strong compared to Sterling as well, so we locked in that, and just two months early before maturity. And the other side is the underlying equity holdings, which has been fairly stable over time actually, that's about 30% - three zero - of the gross assets of the Trust. So, we do have significant exposure to emerging markets within Murray International. As I mentioned, spread over a number of different sectors, a number of different countries. And the underlying performance of those names has been hugely varied. So, actually the best performing over the last year, for example, as a Chilean miner, which we've owned for a number of years in the Trust, it's more than doubled, it's been phenomenally strong. And then the opposite side, we have some Taiwanese in semiconductor companies, which have been weak. So sometimes they do just follow global trends as well. The emerging market companies that we invest in, in semiconductors, TSMC is as another position within Murray International within that category. They do just move with global trends, so those have been weak. And so, we absolutely are still seeing opportunities. We want to have exposure to emerging markets, but it's always done from a bottom-up perspective and trying to build it into and what have we got elsewhere? You know, what's best when you're looking at the world as a whole.

Cherry: Viktor finally the same question to you. And, you know, I'm interested in how you've handled the balance between fixed income and equities as well.

Viktor: Yeah, so LATAM Income Fund, as you mentioned, is kind of a balance fund of equities and fixed income. And it's been quite a difficult period, because of the global volatility and also the inflation rate shock. So on the fixed income side, it has been all about being more defensive. In the last 12 months, we have reduced substantially our duration exposure across most of the countries we invest in, which is, I think, a normal reaction on the fixed income side in an environment where you see the central bank's actively hiking interest rates and the yield curves, adjusting to a high interest rate environment. 

That said, most recently, we have been looking to, to increase duration position quite cautiously. But as we are seeing inflation peaking in some cases, like in case of Brazil has already peaked a couple of months ago, in the rest of the region, probably peaking around now or a month ago, or in a month’s time - so we are around that turning point, and the central banks are approaching the top of their cycle, with brazil, having finished their hiking cycle, Colombia still might need to do more, Chile, Peru around also the top of their cycle. So this is where fixed income becomes more interesting. And there is more attraction of increasing duration. So we had this shift towards more defensive positioning. And now we're starting to come out of that. In terms of the overall allocation, we allowed slightly higher equity exposure, as growth has still been decently high. While, as I said, on the fixed income side, it was more of a defensive play.

Cherry: Samantha, I was hoping we could sort of unpick the sentiment aspect of emerging markets a little bit because in the past, you know, in a climate of ‘risk off’, it hasn't really mattered how good emerging markets have been. They've sold off just because they're emerging markets, and no one likes risk. Today, it feels slightly different in that some areas sort of very heavy, now look very cheap. And other areas such as India, you would say actually look quite expensive. I wonder what you're seeing in terms of relative valuations and also just how you're dealing with that in your in your portfolio.

Samantha: I think when things get extreme, that is interesting you know. So the Chinese property, say for example, it's been so out of favour and you can see why. You know, we’re sitting at the other side of the world, but we can tap into our experts a bit closer to the action. But there are certainly going to be winners and losers even within that subcategory for example. So, a couple of years ago, we dipped our toe in the water in the Chinese property side, we have two Chinese property companies in Murray International for example, small weights, so combined they're only two percent because we always knew they were going to be quite volatile, you know, you have to sort of be mindful of the wider issues but the companies that have been invested in, China Vanke and China Resources Land, are definitely at that higher quality side of the sector. And I do firmly believe that they will be part of the solution going forward. So as companies which have been poorly managed, quite reckless in there lending perhaps, and very heavily indebted, as long as our wound down in a managed way, and you do need other companies to step in and sort things out, because it’s in nobody's interest to have building sites that are half built, for example, so, you will need the good quality companies to come in and help to manage that situation. And so, when companies like that are trading at the kind of valuations they are on right now, and they're still delivering very much to the income requirements of Murray International, then that definitely perks our interest. So, it's not that we would go in all guns blazing and have these massive positions, I don't think that would be a prudent way to approach it. But we are happy with the exposures that we have within that segment, for example. 

And also, in terms of like the semiconductor companies, for example. These are, some of the ones in emerging markets are just world class, there's absolutely no doubting that these companies will be around in years to come. And I think they'll be doing absolutely fine in years to come. Because the longer-term story behind that is rock solid. So I think, when you get extremes and things that have been extremely beaten up, that's interesting. And it's, again, really great to be able to move around like that in the world, depending on what we're seeing at any particular point in time. So it's all about the balance and all about just trying to be really comfortable with the companies themselves, first and foremost, and then trying to work out what kind of weight you feel is prudent within the Trust.

Cherry: I wonder if we could turn now to looking at the extent to which emerging markets are vulnerable to some of the difficulties that we're experiencing in Western markets, so inflation, interest rates and that sort of thing. Elizabeth, I wonder if we could start with China? I mean, it seems to be operating on a slightly different cycle and kind of increasingly decoupled from Western markets. But  what are you seeing there? Are you seeing some of these international problems intrude?

Elizabeth: In terms of where China is on the cycle, I would say that they are pretty much on the opposite end of the spectrum. So, while the US and you know, majority of Western countries are raising rates, since the beginning of this year, China has been going the other way, and actually lowering rates. That's partly because if you look at inflation in China versus the Asian region, it's very low, and you know, much less compared to the global region. Inflation in China is very manageable. So they do have ample room to you know, use these monetary policy levers, if they want. And they have been doing so over the last few months. So I think that that's definitely a positive in terms of where the economy is at right now. They could use, you know, the support from the monetary and fiscal side. So I think, you know, looking after the next few months, I hope that, you know, with some of the monetary easing, working its way through the system, things will be able to pick up a little bit, there'll be a bit of less pressure on the funding side for small and medium enterprises for the real economy for the average borrower. So, I think on that front, they are, you know, pretty much decoupled from the Western cycle at the moment.

Cherry: Okay. And, Samantha, one of the key reasons for investing in emerging markets is growth, you know, additional growth. I wonder what you're seeing in terms of earnings growth, is it possible to get, you know, additional earnings growth by investing in emerging markets? Is that still that they're sort of raison d'etre? And are you seeing that today?

Samantha: Yeah, I mean, we see it much more through individual companies than regions as a whole, to be honest, that's just how we look at things. And you absolutely can get close right now, even although it feels like we're all very much doom and gloom and everyone's struggling. There are certainly pockets that are seeing phenomenal growth. So, the Chilean miner I mentioned previously, it's called Sociedad Quimica, it produces lithium, which is used for electric vehicles. The world cannot produce enough of this commodity right now. And that's one of the key players in this area. So the earnings have been phenomenal. They have been returning cash by way of dividend as well as seeing very strong capital growth in the share price. And so that's an area that's interesting just now.

Another area very different but also within emerging markets is in the likes of Azure, which is a Mexican airport operator, which we have held for decades in Murray International, we bought this IPO going back a long, long time. And it had a really torrid time through COVID as nobody could travel anywhere. But as that market has opened up again, its passenger traffic numbers are better than they were in 2019, where it's coming from in terms of individual spending, where they're at that airport is tiny. So the average spend is something like seven US dollars per passenger. And this is a place where you know, you buy a bottle of water, you change your currency or park if you're going abroad on holiday. So it's just really quite phenomenal the underlying growth matrix of a company like that. So yes, it's an emerging market, it's sort of associated with all the sort of one macro issues that affects a region as a whole. But at the company level, you have to really drill down and understand what you're investing in and what the opportunities are. So for individual businesses like that, their fantastic because they're very different as well, they’re not going to be associated with lots of other things that are going on, it is quite specific. So yeah, there's definitely opportunities there, within emerging markets, and elsewhere. But I think, I think you'd be a bit mad to ignore this massive part of the world that's got, you know, the whole demographic story etc behind it, as well in large parts of it. And as we've heard, before, not managed even by governments and decision makers in the same way that they were going back in the past, so I think you have to keep an open mind as well. And look at it as of ‘right here right now’, where are the opportunities, and at individual stock level what's looking interesting.

Cherry: Viktor, let's, let's sort of scroll back to you know, whether Latin America can side step over the problems we're experiencing in developed markets? Is there anything that you're particularly worried about, you know, what do you see as the big risks?

Viktor: Maybe I - just first before going to the risk - kind of continue with what Samantha said, because this whole theme of green transition and move toward sustainability, is actually quite a prevalent woman in LATAM, and not just on a company level, but also on the sovereign level, especially the Andean countries, they have been the leaders in emerging markets in sustainability, I mean, we have seen, you know, Chile, coming with sovereign green and social bonds already back in 2020. And then since then have been issuing sustainability and sustainability linked bonds, same with Colombia, which started a big programme of issuing green bonds and dedicating money to green projects, we have seen similarly in Peru, the issuing sustainability link bond on the on the sovereign level, and that is really really a leading initiative and shows the commitment are these countries towards ‘greening’. And one other theme which is worth mentioning in the, our current deglobalising world is the reshoring and experience of COVID, which taught us that we can probably no longer maintain those extremely long supply chains. So, we cannot solely rely on everything being, everything being produced in China and LATAM, as a region being the closest to the US should benefit from the reshoring or nearshoring and moving a lot of the supply chains to proximity. 

And in terms of the global risks. I mean, clearly, there's still a possibility that the central banks will not win the war against inflation in the near term and will be forced to continue to tighten policy and will be forced to push the global economy into a deep recession because the underlying inflationary forces could be really strong. And we're seeing that despite a lot of the inflation came from purely supply-side factors, especially the commodity price shock, there is underlying inflationary dynamics coming from wage growth and from people continue to spend a lot of the money which they have received during COVID. So that is something which is still, the jury is still out there, how successful those central banks develop markets, central banks will be. As I said, emerging markets has done its homework. Most of the central banks in EM have done their homework. It's now up to developed market central banks to deliver and bring down inflation and put the economy in a more sustainable path. So, the bigger the biggest risk is, is definitely stagflation.

Cherry: Okay, thanks. So, same question to you, Elizabeth. I mean, what do you see as the biggest risks in China? I guess how are you positioning to try and, you know, ensure that you're not being, you're not exposed to them?

Elizabeth: So alongside the two domestic risks, which I touched on a bit earlier, which are, you know, how long did the dynamic zero COVID policy will last and the real estate sector, I think the probably longer term risk, which doesn't seem to be going away anytime soon, are the tensions between the US and China. I think that that's, that's unlikely to go away anytime soon. It's been, you know, it's not new, but it, it definitely has escalated in the past year. 

So as much as possible, we try to position ourselves in companies that aren't, you know, too susceptible to these risks. So, for instance, with the news flow of ADRD listing from time to time, for all our companies, which are dual listed, we tend to own the Hong Kong line, so that we're not, you know, as directly susceptible to volatility on the US line. But generally, by sector, we try to position ourselves, we are overweight in the consumer sector, where we find, you know, structural growth opportunities in the renewables supply chain, China is over 90% of the global solar supply chain, and close to 80% of the battery supply chain globally. So, these are structural trends, which we don't think are going away, the government has put a big emphasis on innovation in their economy. This was also mentioned that the recent 20th party congress, so these are strategic priorities for China. And, you know, as I mentioned, we try to align ourselves with these themes. And within that, you know, the companies that we choose, we're looking from those who are not only able to withstand, but to benefit from all parts of the cycle, to consolidate, to continue to deliver robust earnings, to gain share, to know when to spend and when to save, you know, we look at the track record of management. So that's, that's how we position our portfolio. And, you know, I think there are a number of risks that are outside our control, but within what we can control, I think this is the best way to position ourselves for a great opportunity that isn't going away anytime soon.

Cherry: I wonder if we could again, just sort of go around the table and just talk through some kind of individual stock examples that are sort of illustrative of your process in action? And you know, also say something about the climate today if that, if that's possible to get that all in one stock idea. Samantha, I’ll put that to you first, if I could

Samantha: Yes, sure. We haven't actually been doing an awful lot of trading. And basically, you go through spells like when there was the eye of the storm and COVID we did lots, you know, going back a couple of years ago now and they’ve actually played out pretty well. That was things like taking down the emerging market bonds and investing that in things like US healthcare that were trading at, you know, really low multiples, 7% dividend yields. And so that was a big part of the story a couple of years back, and things have actually not changed that much in the portfolio. Just very recently, we sold one emerging markets a stock, Castro India, very recently, it was a small position in the Trust and its biggest input is oil, so it produces lubricants for industrial use and automotives. So that's been a struggle of course as the energy price has gone up, and also longer terms that tying it into EV story you know, you just don't have as many moving parts, you don't have the same need for lubricants in an engine going forward so this is quite a bit away but it's part of the story behind the stock as well because we also, that's going to be more affected by that trend. So that's come down a little bit. 

And again we're have put that money, it's just been wherever we've seen opportunities, it doesn't matter if it's emerging markets or Europe or the US or UK. Still seeing some opportunities within US healthcare so putting that money to work there, but it's always driven by the bottom up, always driven by the companies. There’s still plenty of things that we've got in emerging markets that we like, as I say 30% is quite meaningful in a Global Trust to have that within emerging markets. And I don't see that changing anytime soon. There's just so much diversity, people thinking even with China  - think of China Tech, China Property. But there is, if you drill down further you know, there can be some really good opportunities within there so not an awful lot to report in terms of what we've been doing over the very recent past and but always on the lookout in order to see what else is on the horizon.

Cherry: Same question to you, Elizabeth - sort of any particular holdings that stand out for you from recently?

Elizabeth: So one of our holdings is Pro Air Cosmetics, they are the fifth largest domestic cosmetics brand in China. They've been, you know, very well positioned, you know, prior to the pandemic because of the strength of their online channels. So, they weren't as susceptible to the lockdowns and the slowdown in, you know, traffic that, you know, most physical stores saw. They have been, you know, building their customer base over the last few years, they target the young people in lower tier cities with good value products. So, they're the one company that we've feel is set to benefit from the ongoing premiumization trend that's supported by a very good R&D investment, which has allowed them to slowly launch higher priced products. So, we've seen that over time, they've been able to really build their brand, build their following, and you know, consumer trust over time, and they've continued to gain share in the domestic market. I think another thing to highlight about this company is, you know, the ESG angle, we have been engaging with them over, you know, since we invested over the use of you know, what chemicals do they use in their cosmetics products, how much of your products is involved in animal testing, what kind of packaging, you know, ESG policies, sustainable packaging do you use, and this has been ongoing for over a year, we've spoken with the company multiple times. And recently, we, you know, sent an email to MSCI just to discuss, you know, their rating of the company, which was quite poor, you know, which is not really in line with what we, what we see when we speak to the company, and you know, very positively, within one month they reviewed, you know, the evidence that we provided in the exchange that we shared that between ourselves and the company, and have upgraded the MSCI ESG rating from a triple C to a triple B. So, I think, you know, overall, this is a prime example of a company that we like in terms of the solid business, the management and the receptiveness in terms of ESG and disclosure when it comes to you know, you know, partnering with investors for long term growth.

Cherry: Okay, thank you, and Viktor, I know you're on the fixed income side. But you know, anything you're doing in the portfolio at the moment, how you're balanced between the sort of equity and fixed income side?

Viktor: Yes, as I said, we're looking for opportunities to add duration on the fixed income side, which is that we are at the stage of the cycle, when you start to see more opportunities, yields have gone up quite substantially. And cutting cycles are close to over. So yeah, that's, that's the next big move.

Cherry: Okay, great. And then just a very quick sort of round the table, just a sort of download of how you're feeling about the next 12 months, what you think will be the big issues. Samantha, could I, could I put that to you first?

Samantha: Yeah, it's interesting having these kind of conversations and thinking about where we were with emerging markets even like 10 years ago, compared to know, and I would think there's a lot else going on elsewhere in the world that people should be nervous about, you know, none of this will come as a surprise. But you've seen the, all the drama in the UK, with however many prime ministers in the last five minutes. And it's chopping and changing all the time. So, you know, we've in this part of the world been sort of pointing the finger and being quite judgmental, I think, on a lot of emerging markets. And, you know, maybe that's working the other way around, and people are watching us with interest. So, I think having that global remit is fantastic, and we don't have to be anywhere that we're not entirely comfortable with. I'm having that spread of just different things, driving the different stocks that we own is a very valuable thing to have right now. 

Cherry: Great. Thank you, Elizabeth, same question to you.

Elizabeth: Yep. So I think for China, the story really is that, you know, things, the news flow has been so bad, sentiment is so bad, valuations are so low. I think we have a few things we can look forward to. So I think firstly, the policy, working monetary policy, working through the system, to hopefully provide some support to the economy with the easing of zero COVID gradually over the next few months that will provide, you know, a definitely a huge boost to confidence from, you know, the domestic consumer as well as the global investor. And hopefully with the Party Congress and leadership team now in place, that also means more coordinated policy efforts, you know, which will help in terms of execution and people's ability to focus less on the politics and more on the economy. So, you know, taking a relatively constructive outlook for China going forward. 


Cherry: Great, and Viktor, final word from you.

Viktor: I could just echo what Samantha said. And also that it's a big mistake to talk about emerging markets in general, because there's so many different countries, so many different policies. We see countries with stronger balance sheet, we see countries struggling in the current environment. We know that some frontier countries will inevitably default, but that's probably going to happen in an orderly way. We see other countries who will excel in this environment, will benefit from the global trends. So it's quite bad really to mix everything together and talk about EM. But probably going more home, going to LATAM, maybe one thought to leave you with it's going to be quite interesting period because LATAM is running ahead in the world in trying to figure out how the new kind of social contract will look like. We have seen, you know, Chile, writing a new constitution trying to set the rules of the game to a new level. And then we also saw a referendum which rejected this new constitution, which went quite far in, in giving all different rights and privileges to people, to groups of people, to nature and it shows the maturity of Chile, which actually the people managed to say that there is no free beer for everyone, you know, you cannot just promise everything without looking at the price tag. So, I think that was quite a sensible decision. 

Also, this region will be in forefront of deciding how the balance will be struck between kind of the old industry, the oil dependent, fossil fuel dependent industry and the greening economy, we see that now in Chile – sorry - in Colombia, a country which has significant revenues from extractive industries from oil, and they have to now decide, how to switch, how to move away from that. We have a new president came in with quite an extreme green agenda, where he has to tame obviously his ambitions, but they will have to find the way where to go and finally, Brazil will have to figure out the fiscal constraints, how much they can do in improving the social welfare without jeopardising the fiscal balances. So, these are all open questions, not necessarily short-term questions, but something which are brewing in that region. And I think, everywhere else in the world, we have to watch it quite carefully, how this will progress because we can learn from that.

Cherry: Great. Okay, thank you, Viktor, plenty to think about there. Thank you to all the panelists with all those insights today. And thank you to everyone for joining us.