Transcript
We are on the 20th of January. Emerging markets have made a steady start to 2026 following an extremely good 2025.
Um I am just going to provide a brief introduction of Aubrey Capital Management itself for those of you who are not familiar with us. We founded ourselves in 2006.
It’s still an employee majority owned company. We have two main strategies. one is global and one is global emerging markets which is obviously what we are talking about today. We have about a billion dollars under management about two thirds of which is in the emerging market strategy which is via a public fund plus several mandates which have been uh provided to us by a consultant in America. We are very very experienced team I think possibly arguably we are perhaps even the most experienced emerging market investment team in Europe. Um we In both strategies, global and global emerging market, we are benchmark agnostic growth stock investors. We believe in buying into quality growth stocks. Now, people talk loosely about quality growth stocks. Our definition of a quality growth stock is a company where we expect the earnings to grow at at least 15% over the next two years which is generating a return on equity in excess of 15% and is very cash generative which you can then use to finance its growth going forward.
We have been going as Charlie was kind enough to say since 2012. We have got an extremely good long-term track record in emerging markets with an annualized return of almost 9% uh which compares very favourably with the 4.7% generated by the emerging market index itself. Um we tend to have a very very strong upside downside capture ratio because we focus primarily but not exclusively on domestic consumption. These tend to be less cyclical businesses, slightly more defensive in bad times. Um, and generally speaking, they’re the place in our long experience where we think people should focus their attention.
So, what about 2026? The answer is that we are extremely positive on the outlook for the coming year. There’s a combination really which is acting very powerfully in their favour which is a weakening US dollar and a low oil price. Now both these components are exceptionally important for emerging market economies primarily of course because they very very much focus or or very very much affect what happens in the inflation data which is coming through into EM and developing markets. As an asset class emerging markets have been very very under-owned and very u maligned for 10 years or more. As a long-term Asian experienced investment fund I know that these things come and go regularly. they tend to be quite cyclical these markets but this has been a very very long down cycle and I think there are lots of very good reasons to suppose that this time round it’s going to change um one of the areas that we are most uh interested in is India um we think it’s an incredibly good opportunity 1.4 4 billion people. Demographics are exceptionally favourable. It’s got a very very business friendly growth orientated government. Uh and in our experience and estimation, the management quality uh and the opportunities available to investors is absolutely exceptional. Uh in the last year in 2025, AI has been the real driver for emerging market indices. The Korean market for example in the last 12 months is up 94%, Taiwan up 36%. Now we have admittedly found it very very hard to keep up with this because although we do do uh we do uh uh technology investment and we own Samsung electronics, SK Hynex, TSMC and one or two other counters who are AI and technology focused. We haven’t been able to put enough money into battle on this sector. Um, and it has meant that we’ve had a very tough year trying to keep up with a very strong EM index, which by the way rose 32% last year against a 20% return in the MCI world index. However, that said, our portfolio looks extremely strong at the moment. Uh, we are expecting uh earnings per share growth of 26% in 2026. And for all that, you’re paying 19 times earnings. So, it’s on a price earnings to growth ratio of 7. uh we have 33 companies in the portfolio at the moment and only 10 of them have got any debt at all and so they’re generating a very very high return on equity in excess of 20% without gearing their balance sheets. It’s a very very strong portfolio.
Now I spoke earlier about the US dollar. Well, this chart here, just for a little bit of explanation, we have inverted the dollar index. And so when the dollar, the green line, which is a dollar index, is rising, it means that the dollar is weakening. We’ve done that in order to sort of present a proper correlation with the EM index. And you can see that it works on a sort of five to seven year cycle. The dollar generally this is a long-term chart and at the moment the dollar is conspicuously weakening. Now this is important because it means that emerging market central banks are able to loosen monetary policy and to drop interest rates which is very very beneficial effect on their economies. And you can see that there is a very strong correlation. As the dollar strengthens, emerging markets tend to underperform developed markets and the counter the counter point is reached at the moment where the dollar is weakening and you can start to see emerging markets coming good, which is exactly what we want to happen. And our view is that this will continue.
Now, one of the reasons it will continue is also because of the oil price. And here is a five-year chart on oil. And from time to time you get a rally because there’s a crisis in the Middle East or something. But the overall trend is very much downwards with the exception of the Gulf countries with the exception of Malaysia and possibly Brazil to some extent as well. All emerging market countries and all certainly all the ones that we are most interested in are very very heavily dependent on oil imports and this is unequivocally an extremely beneficial effect the lower oil price.
So where where where does this take inflation? And you can see here with these two lines a little explanation again if you don’t mind. The black line is emerging markets economy inflation. Uh the red line is a developed world. Now historically and pretty much invariably the [clears throat] black line is well in excess of the red. It’s partly because these are faster growing economies. Partly because they are less well uh resourced. The infrastructure is less good. as perhaps an element of overregulation, possibly even an element of corruption. Uh but they are less efficient in terms of generating good returns from the economy despite the fact that they’re growing fast and so you tend to have a higher inflation rate generally. Most of my career the Indian inflation rate has been at about 10 or 11%. And one of our subsequent charts you’ll see that it is dramatically lower now. But the point is about this chart here is that inflation in emerging markets is now falling over and dying which is exceptionally good for interest rates. Um and that is very good for stock markets.
[clears throat] And indeed here is what the central banks are doing currently. This is 15 different central banks. Little busy chart here but I mean the blue lines means that rates are rising. The yellow line means that rates are falling. And you can see that in last few quarters um no uh central banks in emerging markets have been lifting their interest rates because they haven’t needed to because inflation is very very benevolent and getting better all the time and this is something that we very much like as equity investors in EM.
And indeed I spoke a second ago about India. I’ve been looking at the Indian markets since the early 1990s and habitually the inflation rate averages between 8 and 12% I would say. Um but this is is a five-year chart or four or five year chart [clears throat] but it’s uh basically you can see very clearly that the Indian CPI the red line uh is falling very dramatically um and yet still the GDP growth for India is absolutely exceptional. the second quarter last year the GDP rate was they work on they work on a March year end so it’s the second quarter is the recent quarter for India uh the GDP growth rate was in excess of 8% and meanwhile the inflation rate uh is continuing to fall soft commodity prices have been good as said the oil price is very very important and the interest rates in in in India at the moment are still at about 5.2% 2% and therefore the real rate uh of borrowing is still pretty high but in our view Indian interest rates are set to move lower in the next 12 months.
And uh one thing that has really really affected our performance in the last year and as I mentioned earlier the Indian market is an area we really keen on um uh but it’s not an AI play I’m afraid as I mentioned Korea and Taiwan have been the ones that have really benefited and India has probably been a source of cash for people to uh refuel into Korea and Taiwan. And the underperform underperformance of India against emerging markets is at really record levels and at reversal levels as well. By the way, I should say that India actually is the best performing or has been the best performing stock market in the last 20 years even better than America. And so you know the opportunity to make a lot of money in India remains extremely good. uh and in our view is is actually still very very much one of our preferred markets but it is tough at the moment because of what’s going on in AI.
And indeed this is really what I’m talking about you can see from this chart here that this is a database identified by UBS which basically sort of says how what percentage of stocks in the different markets are beneficiaries of AI are they providing bits of computers are they providing some software are they providing anything that goes into the AI spend which as we all know is at record and unprecedented levels and you can see that in Taiwan’s case um 80% of the um market is AI beneficiary stocks it’s partly because TSMC of course is so enormous um but it does mean that if for the AI market or to really benefit from AI investment in emerging markets there are really only two markets that have really mattered and that is career and Taiwan as I say Taiwan was up 36% last year and Korea up 94%. And a lot of the Korean stocks were up a multiple of that and the flip side of that also you can see at the on the uh towards the right hand end of this chart uh India is pretty much negligible. Now if the AI uh so-called bubble, we don’t think it is a bubble, but if it deflates somewhat, then in our view, India is going to be the prime beneficiary of the weight of money that will move back to other emerging markets out of AI.
And one of the areas which actually is still potentially quite exciting on on the AI front is China. Those of you who take a keen interest in emerging markets and this sort of thing will remember that about this time last year a Chinese company called Deep Seek uh revealed its own AI technology and uh capability and it had an extremely good effect on the uh Chinese stock market for the rest of the year give or take but very much focused on technology. One of the reasons why China is able to benefit very well from AI should it should it come to pass or they should continue to develop it is that unlike almost every other country in the world they have an enormous capacity for electricity generation which obviously is very very important if you are putting together data centres and using AI. So this will be a trend that in our view uh in China will continue they will continue to be a strong beneficiary of the AI trade.
What has not worked so well for China and indeed has affected our our ability to make money in China has been as I said we focus to a very large extent on on consumer and we don’t just mean eating and drinking and washing and wearing we mean anything from first bank accounts to property to um motorcycles motor cars whatever it might be and if I was to take this chart back another couple of years I’m afraid you would see that it had fallen off a cliff the Chinese property market has been in disarray for a number of years now. And most people in China, their property is probably the thick end of 70% of their family wealth. Um, and so if your property is declining at about 15% a year, you’re not feeling very positive about life. Um, but they’ve been feeling pretty negative about life for quite some while now. And there is some signs that things are stabilizing and that things are at the margin going to get a bit better. So again, I think that there’s grounds for some cautious optimism that the Chinese consumer will start to come to life again in 2026.
Um and finally or one almost our final final chart is the evaluations and I spoke about our own portfolio. This is the emerging market index itself relative to the US and you can see this is a very long-term chart, a 20-year chart. Um and you can see that the valuations which peaked in sort of financial crisis time 20078 and a bit thereafter um have been on a constant decline ever since then and are now well well below their long-term average. Again this is a very very strong inducement I think for people to take another look at emerging markets and consider it as a a very good proposition.
So, what I’m going to just summarize on, if I may, is that we have got a very strong long-term track record of outperformance. We are active stock pickers. There’s no question about that. We do focus on the consumer. And I’m very happy that we do because what I can’t tell you is what the price of semiconductors will be in 12 months time. I can’t even tell you what the price of oil will be in 12 months time. But I can tell you that more Indians will be riding motorcycles, driving cars, or owning their own property. And these are very very consistent trends as people work hard, save hard, get rich in emerging markets. The consumer focus I think is a very very strong underlying tailwind for our portfolio.
Uh we as uh investor managers have a very strong commitment ourselves to the fund. Um I have a very decent chunk of my net asset value in this emerging market portfolio.
We are as I mentioned a very experienced, very stable investment team. We’ve all been together for over 10 years. Uh the investment managers and our analysts have been with us for at least uh uh eight or nine years on average I would say probably. We do as I say have a very strong bias to growth. Uh we are very interested in market leaders. All of our portfolio companies will either be the leader or very close to being the leader in whatever sector or specialization that they are uh conducting. Um and it’s a very high conviction portfolio with a very very strong active share constituent. Traditionally our active share component is about 85%. It’s a little bit lower at the moment because of our holdings in these big Korean and Taiwanese tech companies but by and large it’s a very active uh and I think interesting portfolio.
And just as our final chart here just shows you what we have been what we have done since 2012 when we started the strategy. Um and it it I would commend it to you. 224% against 135% is a decent margin. Albeit we’ve had a tough time in 2025 keeping up relatively. The portfolio was still up 12% in 2025, but obviously that is uh not good enough if you compare it with an index of 32%. But I think that the outlook for 2026 is very positive and we’re looking forward to really really starting to move the needle again in the coming year. So thank you very much for your attention and I hope that that makes reasonable sense and if not please revert to LGBR or ourselves directly if you’d like with any questions. Thank you.
Disclaimer
This is a marketing communication issued by Aubrey Capital Management Limited which is authorised and regulated in the UK by the Financial Conduct Authority and is registered as an Investment Adviser with the US Securities & Exchange Commission. You should be aware that the regulatory regime applicable in the UK may well be different in your home jurisdiction Aubrey Capital Management has taken reasonable care to ensure the accuracy of this information at the time of publication but it is subject to change without notice and it does not in any way constitute investment advice or an offer or invitation to deal in securities.
Past performance is not a guide to future returns and may not be repeated. All performance data for the SVS Aubrey Global Conviction Fund Retail A Accumulation share class. Fund Source: Aubrey Capital Management. Performance data is calculated on a net basis by deducting fees incurred at fund level (e.g. the management fee and other fund expenses), save that it does not take account of initial charges or switching fees (if any). Income reinvested is included on a net of tax basis. Index Source: MSCI, MSCI AC World Index Net GBP income reinvested net of tax.
Please refer to the prospectus and the KIID before making any final investment decisions and if you are still unsure, seek independent professional advice. Investors in the Fund are exposed to fluctuations in the Fund’s value, which can go down as well as up, and may be subject to significant volatility due to market conditions and changes in foreign exchange rates.
Aubrey Capital Management Limited accepts no liability or responsibility whatsoever for any consequential loss of any kind arising out of the use of this document or any part of its contents. This document does not in any way constitute investment advice or an offer or invitation to deal in securities. Recipients should always seek the advice of a qualified investment professional before making any investment decisions. The Fund is not registered for sale in the United States and is not available to, or for the benefit of, U.S. persons as defined by U.S. securities laws.
