In focus
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Co-manager Andrew Ness says one way to protect your portfolio
against the recession is to hold companies that survived the last
one
Templeton Emerging
Markets
sheets over the past four years, they
entered the current crisis from a fairly
defensive starting point.
The manager warned this isn’t to
say that businesses in emerging
markets won’t suffer in the short term
and he has downgraded earnings
expectations for both banks. But he
believes they will come back stronger
after the pandemic.
Templeton Emerging Markets is up
33.63 per cent over the past five years
compared with 19.96 per cent from its
MSCI Emerging Markets benchmark
and a loss of 1.27 per cent from its IT
Global Emerging Markets sector.
It is trading at a 12.3 per cent
discount compared with 10.81 and
11.61 per cent from its one- and threeyear
averages.
One of many misconceptions
about emerging markets
is that they are among the
first sectors to fall during a global
economic crisis. This is one of the
fallacies Andrew Ness hopes to
challenge as co-manager of the
Templeton Emerging Markets
Investment Trust.
As the world faces one of the
most severe recessions ever seen,
Ness said one way to manage this
situation is to invest in companies
that have already experienced and
survived an economic crisis.
The manager said that two
emerging market banks in particular
are good examples of companies
that have been through a recession
in the past, emerging on the other
side in a stronger position: ICICI in
India and Banco Bradesco in Brazil.
For example, while ICICI is down
almost 50 per cent from its February
peak, he said: “Given the profitability
of the business and the coverage of
its assets, it can absorb substantial
growth in non-performing loans over
the next six to 12 months without
having to raise additional equity.”
It is a similar story for Banco
Bradesco. In addition to its similarities
with ICICI Bank– high profitability
and a robust balance sheet – Ness said
Brazil went through a recession as
recently as 2014, which should have
prepared it for the current one.
The 2014 financial crisis in Brazil
occurred alongside a political crisis,
which eventually saw then president
Dilma Rousseff impeached. The
economic crisis was largely attributed
to the government’s mishandling
of policies aimed at stimulating the
Brazilian economy, combined with a
fall in external demand for exports.
Ness said that because Brazil’s
banks have been de-risking balance
FACT BOX
MANAGERS: Andrew Ness & Chetan Sehgal / LAUNCHED: 12/06/1989 / DISCOUNT/PREMIUM:
-12.3% / OCF: 1.03%
CROWN RATING
PERFORMANCE OF TRUST VS SECTOR AND INDEX OVER 5YRS
Templeton Emerging Markets
Investment Trust (33.63%)
80%
60%
40%
20%
0%
-20%
-40%
May15
Source: FE Analytics
Nov
May16
Nov
MSCI Emerging IT Global Emerging
Markets (19.96%) Markets (-1.27%)
May17
Nov
May18
Nov
May19
Nov
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