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Searching for value in emerging markets

Searching for value in emerging markets

The Adventurous Investor, David Stevenson, 10 March 2021

Time for some honesty today. So far, my hope that emerging market equities might be well-positioned to outperform US equities has been totally wrong. EM equities are having a tough time despite a weaker dollar, with most investors worried by the prospect (distant in my view) of higher rates in the US. That said, we are only a few months in and everything could change over the next year or so.

In the meantime, those of us interested in hunting down value in the EM spectrum are presented with plenty of opportunities – we just need to be bloody patient.

Take South Korea for instance.

The local market appears in some developed world indices but it’s mostly seen as an emerging market. It has its own share of unique challenges, not least the dominance of a small number of very big mega large caps, especially Samsung. It’s also seen increasingly as reliant on China for export growth, though that’s only part of the story.

One listed fund on the UK market that is ideally positioned to benefit from any value bounce – in fact, it could benefit from a double value bounce – is the Weiss Korea Opportunity Fund (WKOF) which has tended to trade under the radar for most UK investors.

Marten and Co have recently brought out a useful note on the fund – though obviously biased, given its paid for research model – which can be downloaded here : https://quoteddata.com/research/weiss-korea-opportunity-fund-a-remarkable-success-story-mc/The fund has had a startlingly good year to the end of February though as the table below reminds us, performance up till recently hasn’t been startling…

The fund has a unique twist.

Not only is it a focused way of playing South Korean mid to large caps, it is also specifically “seeks to profit from the valuation gap between the non-voting Korean preference shares that make up substantially all of its portfolio and their equivalent common shares….Most Korean preference shares are effectively non-voting common shares and are generally entitled to the common per share dividend plus an additional fixed amount. Relative to their corresponding common shares, many Korean preference shares trade at a discount resulting in higher dividend yields and lower price-to-earnings ratios.”

Read more here

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