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Great year for JPMorgan Global Emerging Markets Income

JPMorgan Global Emerging Markets Income held back by discount widening

Great year for JPMorgan Global Emerging Markets Income – over the year to the end of July 2019, JPMorgan Global Emerging Markets Income generated an NAV return of 11.9%, well-ahead of the 4.8% return on the MSCI Emerging Markets Index. As the discount narrowed from 6.4% to 1.0%, the return to shareholders was 18.5%. The dividend was increased by 2% to 5.1p.

Extract from the manager’s report

China (including Hong Kong) remains our largest country exposure. The Chinese economy has been challenged on numerous fronts, with domestic industrial output growth falling to its slowest pace since February 2002 whilst retail sales growth also weakened. However, certain industrial indicators suggest recent, if tentative, signs of recovery, with production edging upwards. Despite continued US trade tension uncertainty and the political disturbance in Hong Kong, China was a key contributor to performance, primarily through stock selection where we identified interesting long-term opportunities, particularly in consumer-orientated China A-share stocks. Of note were our positions in electrical appliance manufacturer Midea, dairy products producer Inner Mongolia Yili and life insurance companies such as China Pacific Insurance.

China Resources Power was a notable performance detractor. It not only performed poorly but also disappointed in terms of its dividend pay-out. In spite of it having been one of our larger positions, we have a strict process discipline to sell stocks when they deliver a specific pay-out disappointment like this and we did so on this occasion.

Taiwan is our second largest country exposure – and our largest country overweight position relative to the Company’s benchmark. Given our emphasis on identifying stocks that generate dividends, we appreciate the positive dividend culture in this market and Taiwanese stocks have been key contributors to performance. These include our largest stock holding, Taiwan Semiconductor Manufacturing (TSMC) which is the world’s largest contract chipmaker. TSMC reported positive quarterly earnings in July as well as forecasting stronger demand for the second half of the year, which helped to assuage earlier concerns around lower smartphone growth and Huawei-related weakness.

Mexican equities were volatile over the review period, reflecting the negative economic outlook and ongoing uncertainty about government policy and political disagreements within the government itself. Nevertheless, our stock selection in Mexico added value and is a positive example of how our focus on income-yielding stocks can be helpful. For example, Kimberly-Clark de Mexico performed well for us, benefiting from a fall in pulp prices towards the end of the review period. It is also a dependable dividend payer.

Our South African holdings detracted from overall returns, driven by weakness in global and emerging markets as well as South Africa’s own economic troubles and political infighting. A generally softer economy constrained stocks and held back names we hold including brand promoter AVI and Vodacom.

By sector, Financials was the most important contributor to performance. This remains the Company’s largest sector weighting, on both an absolute and a relative basis. Our stock selection within the sector was positive and the top five performance contributors from the entire portfolio were all Financials. One of these was Russia’s largest bank Sberbank, which has delivered record profits in recent years, amid Russia’s recession and subsequent sluggish recovery. It announced a record high dividend for 2018 (representing 33% growth in the value of dividends per share) and continued on its track of increasing its dividend pay-out ratio – a positive factor for us.”

JEMI : Great year for JPMorgan Global Emerging Markets Income

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