JPMorgan Global Emerging urges investors to pass continuation vote

JPMorgan Global Emerging Markets Income (JEMI ) trust has encouraged investors to vote in favour of continuation at the annual general meeting this month as AI and improving shareholder returns in the region present a promising outlook.

The 4%-yielder’s board said that an increasing focus on raising shareholder returns should underpin share prices in South Korea and China.

Over the 12-month period to the end of July, Citywire A-rated managers Omar Negyal and Isaac Thong picked up a position in Chinese internet retail behemoth Alibaba after its exclusion helped the trust keep up with its benchmark.  

The pair said that not owning e-commerce giant Alibaba was the biggest positive contributor to the portfolio over the period. The property slump and more general economic slowdown in China have put pressure on consumers, which has in turn affected internet retailers.

However, as the market has become more pessimistic on the stock, Negyal has ‘become more interested, to the extent that we initiated a new position for the portfolio after the financial year end’.

‘It seems to us that the management team has recognised its growth issues and is acting in a more rational way to increase its ability to compete in this new environment - both in terms of more focus on the key e-commerce business and reducing emphasis on other non-core activities,’ Negyal and Thong said.

The company has also increased cash shareholder returns, initiating its inaugural dividend last year and buying back shares.

The £439m trust, which has been shortlisted for this year’s Citywire Investment Trust Insider global emerging markets award, reported a net asset value (NAV) total return of 6.3% for the year, keeping it in step with the 6.4% return from its MSCI Emerging Markets benchmark.

When the 5.4p annual dividend – which represents a modest increase on the 5.3p paid last year – is taken out of the equation, the company made returns of 5.4%.

The portfolio is still ahead over three and five years, with underlying returns of 3.4% and 4.6%, respectively, which beat the index returns of 0.1% over three years and 2.4% over five years.

The slide in the valuation of Chinese stocks following a short-lived recovery in the region offered up a number of opportunities.

The pair bought Chinese technology conglomerate Tencent, which they expect to remain resilient owing to its leading position within its sector, while the prospect of higher cash distributions to shareholders creates an attractive investment case.

The portfolio is slightly overweight in China and Hong Kong combined, which make up 28% of exposure, and although China faces some challenges, the duo said overall valuations were more attractive after recent market weakness and the dividend outlook was becoming more positive.

While China’s economy remains sluggish and stock valuations low, the outlook for India is quite the reverse. However, the portfolio is underweight the region despite its long-term growth prospects given the expensive valuations for income-paying stocks.

The underweight caused a drag on returns over the year but the managers said they were looking to other growth markets such as Taiwan, which are more reasonably priced.

Taiwanese group Quanta Computer, the leader in ‘hyper-scale servers’, was also added to the portfolio in the year, as they believe demand for its product is likely to grow as the AI revolution broadens and deepens.

Shares in the trust rose 0.8% to 134.5p on Monday, putting them on a 12% discount. Over the year, the board bought back £9m on share buybacks.