Companies in emerging markets are trading at a 64% discount to their US counterparts on a price-to-book basis – a multi-decade record – having been held back by a strong dollar, monetary tightening and geopolitical headwinds. That, says Mobius (MMIT) manager Carlos Hardenberg, could soon change.

Interviewed at the recent Frostrow investment companies conference, he said: ‘No matter who you speak to, when you mention emerging markets people are normally thinking two things: one is [the] Russia-Ukraine war and the second one is China-Taiwan.

‘That fear, that massive fear, is the main reason why we have lack of confidence and why we have this discount right now.’

Hardenberg, who has lead-managed the investment trust since launching it with emerging markets veteran Mark Mobius in October 2018, expects the post-pandemic recovery in consumption, exports, industrial production and travel (which is already visible across Asia, particularly in India, China and South-East Asia) to gather steam in the next 12 months. The turn of the cycle in the semiconductor sector will be another key driver of earnings, causing markets to re-rate.

Jewellery box

MMIT invests in medium-sized companies in emerging markets and is distinctly different from the benchmark with an active share of 97%. The £139m investment trust won a Citywire performance award last November and owns a ‘jewellery box’ of 24 innovative companies that align shareholders’ capital with the ‘smart domestic money’. Hardenberg is continually seeking to unearth the ‘next gem’.

‘We’re not investing in any of the traditional industries in emerging markets,’ he said. ‘We’re just looking at innovation and new businesses, and the opportunities are all over the place.

‘We have a very strong investment pipeline, particularly in India but also in Korea. We’re currently looking at a few holdings in Vietnam. I wouldn’t ignore Brazil, which is looking very interesting right now. If you look very hard and do the work you find opportunities in all of these places.’

Mobius has delivered a 64.9% total shareholder return over three years, one of the best performances in the Global Emerging Markets sector, and beating the MSCI Emerging Markets index gain of 10.5%. The shares stand on a narrow 2% discount to net asset value.