CC RWC Global Emerging Markets (CHN8850AU) Report & Performance

In July 2023, Emerging Markets rallied on the back of improved sentiment around growth in China following the CCP Politburo meeting. In addition, Emerging Markets were further supported by stronger commodity pricing. During the month, the CC Redwheel Global Emerging Markets Fund returned 7.97% in AUD, and the MSCI Emerging Markets Index Net AUD increased 4.93%.

China gained 10.8% in the month. Following the July Politburo meeting, sentiment in China improved after the government vowed to implement new stimulus policies to aid the economic recovery. Taiwan rose 0.8% on the back of preliminary data being released that pointed to GDP growing 1.5% year-on-year (YoY) in 2Q23, which was a return to growth after 1Q23 GDP fell on a YoY basis.

South Korea increased 6.5% after announcing that 2Q23 GDP increased 0.6%, which was above expectations. India rose 3.0% following the announcement that the country’s industrial output grew 5.2% YoY in May.

In EMEA, Saudi Arabia rose 2.2% after oil prices increased in July following the production cuts in recent months. In Latin America, Brazil rose 4.9% after revealing that inflation rose by 3.2% in June. This was the lowest level in nearly three years.

There were single stock detractors during the period. In Brazil, Sendas Distribuidora declined -8.4% after announcing that decelerating inflation in food led to softer than expected earnings during the quarter. Redwheel continues to believe that earnings will strengthen as rates fall in Brazil. In Taiwan, Global Unichip fell by -8.4% after the company announced that sales will grow at a slower than expected pace for 2023 due to the ongoing inventory adjustment in legacy semiconductor applications, such as consumer electronics.

The Underlying Fund’s positioning in the Materials sector led to a total return of 15.2%, compared to its benchmark which increased 8.4%. This led to 136 basis points (bps) of outperformance relative to the benchmark.

First Quantum Minerals and Zijin Mining Group increased by 25.5% and 16.6%, respectively. First Quantum Minerals rose due to the price of copper rising during the month. Zijin Mining Group benefitted from the prices of gold and copper increasing in July. The Underlying Fund’s positioning in the Communication Services sector was also a positive contributor to performance and led to 129 bps of outperformance.

Kuaishou Technology and Baidu rose by 26.1% and 14.7%, respectively. The outlook for both companies remains strong, and Redwheel anticipates that policy tailwinds in China may accelerate the expected growth for each company.

In June, Emerging Markets rallied after numerous central banks, such as in India and Brazil, decided to hold their benchmark interest rates at current levels as inflation continued to trend lower. Sentiment in Emerging Markets was further bolstered by reports that China is working on a new stimulus package to fuel growth. Against this backdrop, the CC Redwheel Global Emerging Markets Fund returned 2.83% in AUD and the MSCI Emerging Markets Index Net AUD rose 0.91%.

In Asia, China increased 4.0% after the one-year and five-year loan prime rates were reduced by 10 basis points (bps) to 3.55% and 4.20%, respectively. This is a sign that policymakers are attempting to improve economic growth amidst the economic reopening. Taiwan gained 1.7% after the Finance Ministry estimated that exports would pick up towards the end of the third quarter. South Korea rose 0.6% after the Bank of Korea reported that the United States replaced China as the country’s largest buyer of exports in 2022. India increased 4.7% as signs continue to emerge that inflation is moderating. In May, India’s CPI rose by 4.3% year-on-year (YoY), which was the lowest print this year. In EMEA, Saudi Arabia gained 3.4% after announcing a new cut to oil production that will take effect in July. In Latin America, Brazil increased 16.0% after the Central Bank of Brazil left the benchmark SELIC rate unchanged. Brazil also announced a $76bn package to support agricultural producers.

Despite positive absolute performance in all sectors during the month, there were some single stock detractors to performance. The Underlying Fund’s precious metals-related exposure dragged on performance during the month. Endeavour Mining and Gold Fields fell 10.0% and 8.5%, respectively, after a strong showing so far this year. Both companies were negatively impacted by the price of gold falling during the month. In the Energy sector, Petrobras declined 7.3% after announcing a cut to gasoline prices at the end of June.

The Underlying Fund’s overweight to China and the outperformance of its holdings against the MSCI Emerging Markets Index (8.0% versus 4.0%) led to 136bps of outperformance relative to the Index.

Li Auto, Country Garden Services, and Baidu gained 19.9%, 15.4%, and 11.2%, respectively. Li Auto’s monthly sales continue to set new records, which is leading to a stronger position amongst Chinese Electric Vehicle (EV) manufacturers. Country Garden Services benefitted after sentiment in property-related stocks improved due to growing expectations that policymakers in China may introduce new property market support measures.

Baidu continues to further its first-mover advantage in China’s generative AI industry by improving inferencing performance and optimising costs around its large language models. The Underlying Fund’s overweight to the Materials sector (8.7% versus 1.7%), combined with Redwheel’s stock selection in the industry led to 112bps of outperformance relative to the MSCI Emerging Markets Index.

Ivanhoe Mines and Hoa Phat Group gained 25.0% and 22.8%, respectively. Ivanhoe Mines rose after reporting that the KamoaKakula Copper Complex achieved a new monthly production record during May. In Vietnam, Hoa Phat Group rose after reporting stronger than expected sales volumes this year.

In May, Emerging Markets were impacted by falling commodity prices on the back of weaker demand as Chinese and Western manufacturing activity slowed.

The CC Redwheel Global Emerging Markets Fund returned 0.87% in AUD and the MSCI Emerging Markets Index Net AUD rose 0.40%. During the month, China declined -8.4% after the country’s Manufacturing Purchasing Managers’ Index (PMI) declined to 48.8, which was the lowest activity since December 2022. Despite mixed signals over the pace of the economic recovery, Redwheel has seen encouraging trends in company results from Q1 2023 and expects the remainder of the year could exhibit growth trends for companies.

Taiwan gained 7.3% after announcing that exports fell at a slower pace in April compared to March, which is a sign that global demand may be bottoming. South Korea rose 4.8% after the government unveiled a five-year plan to support growth in key economic sectors, such as semiconductors and battery technologies. India increased 2.9% after government data revealed that inflation continues to moderate in the country.

The CPI print for April was 4.7%, which was an 18-month low. Saudi Arabia fell -3.0% after the Saudi Central Bank raised their repo and reverse repo rates by 25 basis points (bps) during the May meeting. In Latin America, Brazil gained 0.6% after the Brazil Central Bank left the benchmark Selic rate unchanged at 13.75%.

In April, Emerging Markets declined amidst heightened geopolitical rhetoric between the United States and China. This impacted sentiment and dragged down equities in China, Taiwan and other countries across the investment universe. The CC Redwheel Global Emerging Markets Fund fell -4.04% in AUD and the MSCI Emerging Markets Index Net AUD returned 0.20%.

During April, China declined -5.2% on the back of rumours that the Biden administration plans to restrict future foreign investments in certain areas of China’s economy such as parts of the technology sector. In addition, China’s manufacturing activity shrank in April and led to concerns over the pace of the economic recovery. Taiwan fell -4.2% after preliminary data pointed to GDP declining -3.0% year-over-year (YoY) during Q123. South Korea decreased -0.9% after announcing that exports dropped -13.6% YoY in March, which marked the sixth consecutive month of declines. India rose 4.2% after the Reserve Bank of India decided to keep the benchmark interest rate unchanged at 6.5%. -In Latin America, Brazil gained 3.4% after consumer prices rose 0.71% month-over-month (MoM) in March.

Inflation in Brazil grew at a slower rate compared to February and points to the ongoing disinflation trend in the country. In Europe, the Middle East and Africa (EMEA), Saudi Arabia increased 6.0% after the kingdom announced four new special economic zones that will help diversify the economy.

In March, Emerging Market equities rallied after decisive actions by global central banks alleviated pressures on the banking system and led to improved sentiment across equity markets. The CC Redwheel Global Emerging Markets Fund gained 3.39% in AUD and the MSCI Emerging Markets Index Net AUD increased 3.74%. China increased 4.5% after reopening their border to foreign visitors on 15 March 2023. In addition, the People’s Bank of China reduced the reserve requirement ratio by 25 basis points to support the economic recovery as the country reopens. Taiwan rose 3.0% after reporting that February CPI had decreased to 2.4%. South Korea gained 4.8% after Japan lifted restrictions on certain semiconductor material exports to South Korea. This signals that trade relations between these two countries may be improving. India increased 1.2% after reporting that industrial production grew by 5.2 year-over-year (YoY) in January, which was higher than the prior month. In Saudi Arabia, which rose 5.7%, Saudi Aramco announced plans to raise the price of crude oil shipments to Europe and Asia in April. In Latin America, Brazil fell -0.3% after the Brazil Central Bank left the Selic interest rate unchanged. In China, Alibaba and Kuaishou Technology gained 13.0% and 15.1%, respectively. During the month, Alibaba announced that it would restructure into six business groups. Redwheel anticipates that this will be beneficial for operational efficiencies and lead to a higher valuation. Kuaishou Technology rose after reporting robust top-line growth and improving operating metrics, such as traffic and daily active users, during Q4 2022. The Underlying Fund’s exposure to gold miners performed well during the month amidst an increase in the price of gold. Gold Fields and Endeavour Mining gained 49.8% and 20.0%, respectively.

In February, Emerging Market equities went through a correction after a strong start to the year. During the month, the CC Redwheel Global Emerging Markets Fund fell -4.65% in AUD and the MSCI Emerging Markets Index Net AUD declined -2.28%. China fell -10.4% on the back of renewed geopolitical tensions. Following the surveillance balloon incident, the United States added six Chinese entities to an export blacklist over concerns that they are supporting China’s military development. Taiwan and South Korea decreased -1.1% and -7.0%, respectively, after January data revealed that exports continue to decline at an accelerated rate. India declined -4.6% after the Reserve Bank of India increased the benchmark interest rate by 25 basis points to 6.5%. In Eastern Europe, Middle East, and Africa (EEMEA), South Africa and Saudi Arabia fell -7.7% and -7.4%, respectively. South Africa reported that manufacturing production fell -4.7% year-over-year (YoY) in December amid a worsening electricity supply crisis caused by mismanagement of the state electric utility, ESCOM. The Saudi Central Bank raised rates by 25 basis points to 5.25%. In Latin America, Brazil declined -9.2% after reporting that industrial production fell by -1.3% YoY in December and in the midst of potential policy changes by the new President Lula. In China, Lizhong Sitong gained 17.8% after Tesla announced their long-term cost reduction roadmap, which calls for wider usage of single-piece casting components. Lizhong Sitong is a key supplier of these parts. Greek bank, Eurobank increased 14.3% after benefitting from a substantial pick up in loan growth. The team anticipate that this trend will continue. In the United Arab Emirates, Aldar Properties rose 7.8% after reporting robust operating KPIs and real estate sales that reached record highs.