EMERGING MARKETS Finding gems in emerging markets

not well represented in the broader indices of these respective regions, which is why it takes a bottom-up active investment approach to seek them out.

Bottom-up investors like FSSA closely follow management teams with a track record of building quality franchises with defensive characteristics, such as high returns and recurring cash flows.

CHINA’S NEXT COMING

China’s re-emergence has Nemmoe particularly excited about the companies he’s invested in, with competitive advantages in the form of strong brands and proven management teams and leverage to Chinese consumers as the country roars back from three years of hard lockdowns.

“I think we will be surprised by how fast things normalise,” says Nemmoe, who is the lead portfolio manager for the FSSA Global Emerging Markets Focus strategy, which launched in December 2017 and recently passed its 5-year anniversary.

“While mask-wearing is still common, this is much less so in an outdoor setting and even indoor masking is not strictly enforced. From our conversations with the various people that we met, I get the sense that everyone just wants to get their normal life back.”

While unprecedented lockdowns during the global pandemic had a huge impact on many companies, both in developed and less developed countries, a return to normality in China could see a significant opportunity emerge for discerning long-term investors.

“After the lockdowns occurred, we took a step back and did a deep-dive on all our holdings. We had calls with management teams and re-evaluated their businesses. Fortunately this gave us great confidence in the longer term trajectory of our holdings,” says Nemmoe.

One of Nemmoe’s key takeaways was cost focus. By renegotiating rental agreements and supplier contracts, portfolio companies significantly improved operational leverage, which Nemmoe believes could create a situation where margin expansion outstrips prepandemic highs as regular social activities return.

He notes portfolio companies came out of the pandemic period generally in better shape than their peers.

“The majority of our holdings are market leaders, and we realised that if they were struggling, competitors would be even worse off,” Nemmoe says.

“By talking to the management teams in China, it became increasingly clear that coming out of the crisis many of our holdings would have even greater market share and face less competition.”

Even though many companies in China and across emerging markets had a challenging period in the early stages of the pandemic, Nemmoe believes now is a good time to take advantage of the situation and find some attractive bargains.

He adds, “We believe the current correction in share prices presents an excellent opportunity for long-term investors like us to accumulate leading franchises at attractive prices.”

INSIDE CHINA’S OLDEST AND MOST FAMOUS BEER BRAND

■ As one of the oldest and most famous beer brands in China, Tsingtao1 is the poster child of ownership reforms, where strategic investors buy stakes in China’s state-owned enterprises.

■ Ownership reforms in China tend to be beneficial to shareholder returns as the new investors appoint board members and introduce management stock options to incentivise better performance.

■ While Tsingtao’s first decade of private ownership was characterised by brand building, its strategy in more recent years has been to focus on efficiencies and improving profitability.

■ The company has closed down plants and launched high-end products – such as Tsingtao Draft, IPA and Pilsner – to tap into the premiumisation trend in China’s beer market.

■ Since its focus on profitability and efficiency, margins have improved, and higher sales volumes and selling prices have contributed to faster bottom-line growth.

Key Points

◾ Capex – Drivers suggest companies and governments are embarking on a major cycle of capital spending.

◾ Technology – While investors are too focused on near-term cyclical concerns, the technology industry is now poised in the foothills of the AI opportunity.

◾ Energy trilemma – The war in Ukraine has forced governments globally to prioritise energy security and affordability while addressing climate change.

New York-based fund manager Steve Wreford says picking key global themes that will drive investment returns over the next decade is no easy task – and identifying the shares that will deliver tangible returns to investors is even harder.

A senior portfolio manager with Lazard Asset Management LLC, Wreford co-manages the 25-yearold Zurich Investments Global

Fund Focus

Fund name: Zurich Investments

Global Thematic Share Fund

Style: Thematic

Retail Investors: Yes

Portfolio Managers: Lazard Asset Management Pacific Co. (Lazard)

KEY POINTS

◾ Green and social bonds are growing in popularity