Over the six months to the end of September 2016 Templeton Emerging Markets returned 29.6% in NAV terms, well ahead of the 21.7% return posted by its benchmark, the MSCI Emerging Markets Index.
The largest contributions to performance came from Buenaventura, ADR (up 108.4%, added 2.0% to NAV), Banco Bradesco, ADR (up 49.8%, added 0.7% to NAV), M. Dias Branco (up 143.1%, added 0.7% to NAV), NetEase, ADR (up 87.3%, added 0.6% to NAV) and Itaú Unibanco, ADR(up 42.8%, added 0.6% to NAV).
Buenaventura is the largest precious metals company in Peru and a major holder of mining rights in the country. It is engaged in the mining, processing, development and exploration primarily for gold and silver, as well as zinc, lead and copper. The company reported strong second-quarter results, driven by improved production and lower costs. A rebound in metal prices further supported sentiment in the stock.
Banco Bradesco is one of Brazil’s biggest financial conglomerates, providing a full range of banking and financial services. Second quarter earnings were in line with market expectations, but concerns about asset quality led to higher provisioning. The initiation of impeachment proceedings against President Dilma Rousseff, which required her to step down for up to 180 days pending the result, boosted investor confidence on rising hopes on Vice President Michel Temer, who took over as the country’s acting president. The stock participated in the substantial rally in Brazilian stocks during the reporting period, as appreciation in the Brazilian currency (the real), an improvement in business sentiment and generally positive economic data further supported equity prices in Brazil.
M. Dias Branco is Brazil’s leading manufacturer and seller of cookies, crackers and pasta. In addition to benefitting from greater investor confidence in the Brazilian equity market, strong second quarter sales and earnings boded well for the company.
By contrast, the five largest detractors (mail.ru, iMarketKorea, KCB Group, America Movil ADR and China International Marine Containers)collectively cost the fun 1.1%.
Mail.Ru is one of the largest internet companies in Russia which operates social networking sites, instant messaging (“IM”) networks, email services and internet portals. Disappointing first half results, with profitability impacted by higher marketing costs to promote games, and a cautious management outlook for the second half of 2016 weighed on the share price performance. Weakness in the Russian economy also impacted consumer spending, affecting gaming revenues. We increased our position in the stock due to its dominant market position in Russia and merger and acquisition potential.
iMarket Korea is a procurement outsourcing company based on a B2B e-Marketplace platform. Its main business is to purchase materials, tools and equipment that are used for companies’ MRO (Maintenance, Repair and Operation), and to supply those to companies and industries so that they can enhance the efficiency of purchase processes and lower costs. Disappointing first quarter results and concerns about a slowdown in business revenues from the Samsung group, a key client, affected the share price in the earlier part of the reporting period. However, an improvement in the operating profit margin and an increase in revenues from Samsung in the second quarter led the shares to rebound off its period-lows in the latter part of the period. Taking a long-term view on the stock, they continue to maintain our holding.
KCB Group is one of Kenya’s largest banks in terms of assets, providing both retail and commercial banking services. The recent decision by the Kenyan Central Bank to cap lending rates depressed prices of all listed banks and raised many questions on how the decision would affect the sector’s performance. Deterioration in asset quality and uncertainty surrounding a possible rights issue also impacted investor confidence. However, news that the company was in talks with companies such as Facebook, Apple and Alibaba on digital payments collaboration led the share price to rebound from its period-low at the end of the reporting period. They used the correction as an opportunity to increase the holding as the valuations became relatively more attractive.
TEM : Templeton beats benchmark by 8%