Emerging Markets Equity Commentary | Q1 2020

Quarterly Letter

In the ten years since the global financial crisis, emerging markets have faced significant challenges, including a collapse in commodity prices, QE-induced financial market volatility, Russia’s annexation of Crimea, and corruption scandals in Brazil.  Largely, their people, institutions, and governments rose to meet those challenges and charted a path forward.  With this COVID-19 outbreak, East Asian emerging market countries, such as South Korea and Taiwan, are managing the crisis with competence and efficiency. Other nations, with more limited healthcare infrastructure and less stable finances, will be pushed to the edge.  While the path ahead is fraught with risks from widening fiscal deficits, rising debt levels, currency devaluations, and lower long-term economic growth, most governments are taking bold measures, which gives us confidence that a worst-case scenario can be avoided.  We are finding value in countries where currencies and equities have sharply corrected, reflecting a highly pessimistic outcome, and in sectors such as consumer discretionary, where valuations have tumbled due to near-term demand collapse.  We have been adding to industry leaders with strong balance sheets and a demonstrated history of execution through challenging conditions.