High cash weightings help EM companies recover

Emerging market companies are emerging from the pandemic with more cash on their balance sheets, making them more likely to weather the downturn than those in developed markets. 

Companies in emerging markets had less debt and more cash than those in North America and Europe, said Premium China Funds chief investment specialist Jonathan Wu.  

He said this was a reason why emerging market funds had performed better than their developed market counterparts.  

Companies in countries such as China and Korea had been among the first to emerge from the pandemic and begin recovering. 

According to FE Analytics, within the Australian Core Strategies universe, the average emerging market fund had lost 5.7% since the start of the year to 31 July, 2020 compared to losses of 9% by the Australian equity sector.  

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Performance of emerging market sector versus Australian equities since start of the year to 31 July 

The Premium Asia Income fund, managed by Wu, had returned 3% over the same period versus returns of 1.9% by the diversified credit sector and Wu said this was helped by its exposure to emerging market credit.  

“The key has been sectoral exposure and the fund’s exposure to emerging markets has been fundamental.” 

The fund’s largest sector exposure was real estate at 41% followed by transportation at 11% and pharmaceuticals at 8%.  

Performance of the Premium Asia Income fund versus diversified credit sector since start of the year to 31 July, 2020