Weighting to China supports EM funds
As the rest of the world copes with the COVID-19 pandemic, emerging market funds that backed China and other East Asian countries that responded the pandemic swiftly have maintained returns.
According to FE Analytics, within the Australian Core Strategies universe, the emerging market sector had an average loss of 3.01% over the one year to 31 May, 2020.
The best performers were Paradice Global Emerging Markets (12.18%), Northcape Capital Global Emerging Markets (12.12%), Macquarie Walter Scott Emerging Markets (6.99%), Legg Mason Martin Currie Emerging Markets(5.48%) and CFS FirstChoice Wholesale Emerging Markets (5.06%).
Online retailer Alibaba, technology-focused holdings company Tencent, and Taiwan Semiconductor Manufacturing were the common top holdings for the best performing funds, although the Macquarie Walter Scott fund did not hold Alibaba.
In its May report, Legg Mason said at a market level healthcare faired the best, while utilities were the biggest detractor.
“While it is too early to predict the end of the COVID-19-driven recession, there continues to be a rebound in economic activity in those emerging markets countries where the virus appears better contained,” it said.
“EM currencies also broadly strengthened against the US dollar – this came against a backdrop of the US Federal Reserve telegraphing a lower interest rate policy, maintaining a target range between 0% - 0.25%.”
The China rebound had not been without issues, as the US/China trade war still loomed over, as well as tensions in Hong Kong.
In its report, the Macquarie Walter Scott fund said Hong Kong headquartered AIA was the biggest detractor during May.
“China’s stated intention to impose a national security law on Hong Kong increased local tensions and exacerbated the long-running hostility between China and the US, endangering the favoured trade status long bestowed upon Hong Kong by the US,” it said.
“Against this vexatious backdrop, the portfolio’s Hong Kong-based holdings, led by AIA Group, were the largest detractors from performance in May.”
Best performing funds in the emerging market sector over the 12 months to 31 May 2020
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