Barings Emerging EMEA Opportunities

Barings Emerging EMEA Opportunities PLC

LEI: 213800HLE2UOSVAP2Y69

Annual Report & Audited Financial Statements for the year ended 30 September 2023

The Directors present the Annual Financial Report of Barings Emerging EMEA Opportunities PLC (the "Company") for the year ended 30 September 2023. The full Annual Report and Accounts for the year ended 30 September 2023 can be accessed via the Company's website, www.bemoplc.com.

NON-STATUTORY ACCOUNTS

The financial information set out below does not constitute the Company's statutory accounts for the year ended 30 September 2023 but is derived from those accounts. Statutory accounts for the year ended 30 September 2023 will be delivered to the Registrar of Companies in due course. The Auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditors' report can be found in the Company's full Annual Report and Accounts on the Company's website at www.bemoplc.com.

Financial Highlights

for the year ended 30 September 2023

Revenue return (earnings) per Ordinary Share is based on the revenue return for the year of £1,726,000 (2022: £2,014,000). Capital return per Ordinary Share is based on net capital loss for the financial year of £1,557,000 (2022: loss £34,746,000). These calculations are based on the weighted average of 11,829,676 (2022: 12,007,165) Ordinary Shares in issue, excluding treasury shares, during the year.

At 30 September 2023, there were 11,796,902 (2022: 11,930,201) Ordinary Shares of 10 pence each in issue which excludes 3,318,207 (2022: 3,318,207) Ordinary Shares held in treasury. The shares held in treasury are not included when calculating the weighted average of Ordinary Shares in issue during the year. All shares repurchased during the year have been or are being cancelled.

1 Alternative Performance Measures ("APMs") definitions can be found in the full Annual Report

2 % based on dividend declared for the full financial year and share price at the end of each financial year.

# Key Performance Indicator.

* The benchmark is the MSCI EM EMEA Net Index. Prior to 16 November 2020, it was the MSCI EM Europe 10/40 Net Index.

Five Year Financial Record

ROLLING ANNUALISED PERFORMANCE (%)

Source: Barings, Factset.

CALENDAR YEAR PERFORMANCE (%)

Source: Barings, Factset.

Chairman's Statement

Despite a challenging market backdrop for both EMEA equities and markets globally, it is pleasing to report that our Investment Manager delivered a small NAV total return of 0.5% and outperformed the benchmark.

Last year I wrote of the tragic events in Ukraine and the various knock-on impacts this had to the global economy and financial markets, all of which unfortunately resulted in a significant decline of the Company's NAV. This year, the performance of equity markets across EMEA has, to a much larger extent, reflected the differing fortunes of each

country in which your Company invests. In this context, the performance of our region's underlying markets was very diverse. Markets in Europe gained between 45-60% on tentative hopes that their economic outlook was improving, whilst more orthodox monetary policy in Turkey helped their equity market gain close to 60%. Meanwhile, in contrast, the larger markets in the Middle East and South Africa posted small declines as some profit taking and a weakening macroeconomic picture both weighed on performance. Overlaying this, our markets also had to contend with the broader global headwinds of inflation, adverse currency movements and higher interest rates across much of the developed world, both of which frequently impacted sentiment as investors digested the latest economic data and reassessed the path for interest rates.

Despite this challenging backdrop, it is pleasing to report that our Investment Manager delivered a small NAV total return of 0.5%. This outperformed the benchmark, which declined -3.4%. This result was largely attributable to stock selection, based on our Investment Manager's fundamental bottom-up investment process.

The strong relative returns during this financial year are a testament to how performance has continued to recover after last year's write-down of Russian assets, with the portfolio +3.9% ahead of the benchmark. Whilst the Company remains ahead of the benchmark over the ten year period performance, performance over the three to five years continues to be impacted by this write-down, with the Company lagging behind the benchmark across both periods.

Investment Portfolio

The portfolio's holdings in Emerging Europe were some of the strongest performers, helped by some modest improvements in the region's economic outlook, a strong tourism season in Greece and, in the case of Poland and Hungary, an easing of monetary policy.

Similarly, Turkish equities held in the portfolio returned in excess of 80% in the financial year. Local equity markets in Turkey have been supported by domestic savers seeking a return in the inflationary environment, whilst the central bank's move recently to more orthodox monetary policy has been welcomed by the market.

In the Middle East, the portfolio's holdings in Saudi Arabia and Qatar registered the largest declines on an absolute basis, with a lower average oil price impacting short-term economic sentiment in both countries. Whilst the value of the Company's holdings in these markets declined over the period, stock selection across these markets was strong and helped improve the Company's relative performance versus the benchmark.

Holdings in South Africa declined in absolute terms as the country continues to face a challenging economic backdrop, worsened by disruptions to the electricity supply.

Russian Assets

Russian assets in the portfolio continue to be valued at zero, whilst extensive sanctions and restrictions on the sale of securities remain in place. Dividends from Russian securities are being received into a Russian company bank account but cannot currently be repatriated. The Board will continue to value these assets at zero until they are capable of being realised. Consequently, there is no exposure to Russia in the Company's NAV and Management Fees are not being charged on these assets.

The Board is actively reviewing possible structures that would enable the Company to separate these Russian assets from the main portfolio, whilst ensuring compliance with global sanctions. The Board is mindful of the value these holdings may provide to shareholders in the future and any possible structure will be designed to protect that value. Most of the strategic options available to the Company are dependent on finding a resolution to this problem, and we attach high priority to this. Such a resolution is dependent upon meeting all relevant regulatory requirements and the timescale for any required approvals is not in our control.

Discount Management

The Board continues to focus on discount management, with the aim of containing discount volatility. Whilst share buybacks continue to be an option available to the Company to help manage the discount, they are significantly less effective during periods of elevated market volatility, as has been the case recently. The Company bought back slightly more shares during this financial year, spending a similar amount to last year, but with the majority of shares acquired during the first half of the year.

During the year, 133,299 Ordinary Shares were bought back and cancelled at an average price of £5.20 per Ordinary Share, for a total cost of £694,000. The share buybacks added approximately 1.29 pence per Ordinary Share to NAV.

The discount at year-end was 21.8% and the average discount during the period was 18.9%. This compares with a discount of 13.3% as at 30 September 2022 and an average discount during the 2021/22 financial year of 15.3%. The average discount has been noticeably wider since the write-down of Russian assets in the first quarter of 2022. In addition, increased levels of broader market volatility across our investment universe and equity markets globally have also heightened discount volatility. This has impacted many investment trusts and is not unique to our Company.

Discount Control Mechanism

In October 2020, the Company announced a broadening of its investment mandate and introduced new discount management and performance targets over a five-year time horizon, to end September 2025. When these targets were set, we could not have imagined how events would have unfolded in Russia and the associated knock-on effects on energy prices, inflation and the global economy. Given the changed circumstances, the Board believes there is a strong likelihood that we will miss the targets, triggering the need to make a tender offer for up to 25% of the Company's issued Ordinary Shares in late 2025. In the short term it seems unlikely that we will be able to realise the Russian assets, so, based on current circumstances and depending on the take up, the tender offer may cause the Company to shrink substantially potentially undermining liquidity and increasing cost ratios beyond an acceptable level. Meanwhile, until the Russian securities position is resolved, the value obtainable by shareholders from other corporate solutions is also likely to be sub-optimal. Hence, whilst we cannot predict the position in two years' time, the Board will keep the appropriateness of the discount control mechanism under review and, if the 2025 targets are not met, evaluate the possibility of a tender offer alongside other strategic options.

Gearing

There were no borrowings during the period. At 30 September 2023, there was net cash of £3.9 million (30 September 2022: £0.2 million). The Company does not currently use a loan facility but keeps its gearing policy under review. The Company may look to make use of borrowing arrangements when markets are less volatile with the objective of increasing portfolio returns.

Dividends

The income generated by the portfolio continues to be impacted by the absence of Russian dividends.

In the financial year under review, the income account generated a return of 14.6 pence per Ordinary Share, compared with 16.7 pence last year. The Directors are proposing a maintained final dividend of 11 pence per share  (2022: 11 pence per share). In respect of the six-month period ended 31 March 2023, the Company paid an interim dividend of 6 pence per share (2022: 6 pence per share).

Based on dividends for the financial year and the share price as of the end of the financial year, the Company's shares yielded 3.5%. The Board believes that, given the circumstances, this remains an attractive yield. The Company retains the flexibility to pay out up to 1% per annum of NAV from capital as income to shareholders. The Investment Manager continues to believe the income potential of the portfolio will grow over the medium term and that this growth will be sustainable.

Board Succession

The Board will be recommending my reappointment as a Director of the Company at the 2024 Annual General Meeting. I was appointed as a Director of the Company in April 2014 and appointed as Chairman in January 2018. Thus, if re-elected at the forthcoming 2024 AGM I will have served as a Director beyond the nine-year recommended period of tenure.

The Board considers that owing to the strategic issues now facing the Company, it would be in the best interests of the Company and shareholders that I remain as a Director and Chairman of the Company beyond the nine-year recommended period of tenure. This would be to ensure continuity in the ongoing discussions the Board is undertaking regarding the future of the Company.

Calum Thomson will be seeking re-election at the 2024 AGM; however, he has notified the Company that he will be standing down and resigning as a Director after the 2024 AGM once a suitably qualified successor has been identified. Calum has been an extremely valuable member of the Board and a highly effective Audit Committee Chair. He will be greatly missed and we extend our thanks to him.

A more detailed discussion of succession planning can be found in the full Annual Report.

Annual General Meeting

The Board would be delighted to meet shareholders at the Company's Annual General Meeting ("AGM"), to be held at the offices of the Investment Manager, 20 Old Bailey, London EC4M 7BF, on Thursday, 25 January 2024 at 10am. The Investment Manager will give their customary presentation on the markets and the outlook for the year ahead. Details can be found in the Notice of the AGM.

Outlook

Investors continue to show limited confidence in the outlook for the global economy, as higher interest rates begin to take effect and dampen economic output. Meanwhile, consumer confidence, although somewhat improved, remains at low levels and China's reopening has shown signs of faltering.

Across our investment region, Emerging European markets are generally faring well despite the overhanging risk of an economic slowdown across Europe more broadly. Larger economies such as Poland are benefitting from strong domestic demand, whilst the Greek economy continues to recover from its sovereign debt crisis and has recently regained its investment grade status.

Middle Eastern economies are predicted to grow at a slower pace than was the case in 2022, but remain well placed to benefit from low inflation and substantial investment as they seek to further diversify.

The macroeconomic picture in South Africa remains challenging, with problems worsened by the exacerbation of power shortages. However, with inflation generally trending down there is the potential for a consumer-led recovery. This may present selective opportunities for investment in domestically focused businesses.

Whilst economic fortunes differ between countries, the region has seen a recovery in corporate earnings in aggregate, whilst at the same time stock market valuations continue to look attractive relative to history.

Promotional Activity and Keeping Shareholders Informed

The Board and Investment Manager have in place an ongoing communications programme that seeks to maintain the Company's profile and its investment remit, particularly amongst retail investors. Over the review period, we have continued to distribute our monthly BEMO News which is emailed to engaged supporters, including many hundreds of the Company's shareholders. These emails provide relevant news and views plus performance updates and links to topical content. If you have not already done so, I encourage you to sign up for these targeted communications by visiting the Company's web page at www.bemoplc.com and clicking on `Register for email updates'.

Frances Daley

Chairman

7 December 2023 

Report of the Investment Manager

Our strategy seeks to diversify your portfolio by harnessing the long-term growth and income potential of Emerging EMEA. The portfolio is managed by our team of experienced investment professionals, with a repeatable process that also integrates Environmental, Social and Governance ("ESG") criteria.

A detailed description of the investment process, particularly the ESG approach can be found in the full Annual Report.

Market Summary 

Emerging European, Middle East and African (EMEA) equity markets were weaker over the period, with the MSCI EM EMEA index declining -3.4% in GBP terms. The portfolio outperformed the benchmark over the financial year, with the Company's NAV total return posting a modest gain of +0.5% in GBP terms.

Whilst the performance of EMEA equity markets over the period was owed in part to the limited confidence investors have shown in the outlook for the global economy,  returns were also compounded by the appreciation of Sterling, which strengthened significantly versus most EMEA currencies and dragged down returns when expressed in GBP terms.

EMEA, in line with markets globally over the financial year, often suffered changing fortunes, owing to the rapidly evolving monetary and inflationary environment. The region's equity markets posted modest gains at the start of the financial year helped by economic conditions that generally proved to be less bad than feared and company earnings which were more resilient than anticipated. There was also hope that inflation across developed countries might be cooling and, in response, major central banks would slow the pace of interest rate hikes.

EMEA Market Performance (in GBP, based on MSCI indices)

Currency Returns (vs GBP returns, %) - 1 October 2022 to 30 September 2023

Country Returns (vs GBP returns, %) - 1 October 2022 to 30 September 2023

Source: Barings, Factset, MSCI, September 2023

Markets in the region were weaker at the turn of the calendar year and into the first quarter of 2023, as inflation was not falling as quickly as hoped and investors adjusted expectations for a prolonged period of higher interest rates. Stresses in the banking sector at this time also weakened sentiment, although there was no direct impact on companies within our investment region.

Positively, returns were strongest towards the latter stages of the period, helped by unique market-specific developments, such as increasingly market-friendly monetary policy in Turkey, a booming real estate sector in the United Arab Emirates (UAE) and some modest improvements in Europe's economic outlook. There were also some modest improvements to the global economic growth outlook, with consumer confidence and economic activity surveys picking up from low levels.

Regionally, markets in Central and Eastern Europe were some of the best performers across EMEA with Greece, Hungary and Poland returning between 45-60%. The region rebounded dramatically after underperforming for most of 2022, benefitting from some modest improvements in Europe's economic outlook and in the case of Greece, a successful tourism season and confirmation that business-friendly PM Mitsotakis had won a second term. Performance was also amplified by local currency strength, with the Hungarian Forint and Polish Zloty being the only two currencies to appreciate versus Sterling over the period. 

Turkey was another strong performer, returning 60% in GBP terms. Earlier in the period Turkish equities accelerated in response to local savers seeking a haven for their assets in the rapidly rising inflationary environment. More recently, sentiment improved following the adoption of orthodox monetary policy by the central bank, with policymakers hiking rates from 8.5% to 40% in an effort to tame hyperinflation. This in turn has laid the foundation for international investors to return to the market, with bond issuance and initial public offerings rising substantially from lows. 

Saudi Arabia and Qatar were the region's worst performers, declining 14% and 25% respectively. This reflected a combination of some profit taking, following strong performances in 2022, and dollar weakness, which weighed on the region's pegged currencies. Oil prices were weaker for most of the period, before accelerating to close to $100 a barrel in September as OPEC+ begun to constrain supply in response to subdued global demand.

Income

The Company's key objective is to deliver capital growth from a carefully selected portfolio of emerging EMEA companies. However, we are also focused on generating an attractive level of income for investors from the companies in the portfolio.

Owing to a full year without any contribution from Russian dividends, the portfolio generated lower revenue during this financial year than was the case for 2021/22. However, looking forward, we believe that rising pay-out ratios, efficiency gains, and an encouraging economic environment, most notably in the Middle East and Eastern Europe, will all contribute positively to revenue growth for the portfolio over the medium term. Importantly, we believe that this revenue growth will be sustainable.

Macro Themes

In line with our bottom-up approach, our primary focus is to identify attractive investment opportunities at the company level for our shareholders. Nevertheless, we remain vigilant and mindful of broader macro effects within the region. This in turn helps to support the contribution to performance from our company selection, accessing long-term growth opportunities, while reducing the effects of declines in performance from major macro dislocations.

Greece & Turkey - Leading Emerging Europe's revival

Despite an uncertain global macro backdrop, a number of Eastern European stock exchanges have become some of the best performing in 2023. More than a decade after Greece teetered on the edge of a Eurozone exit, the country has defied critics and rebounded, delivering GDP expansions of 8.4% in 2021 and 5.9% in 2022. While Greece owes in part its economic recovery to its position as a traditional tourist destination, which accounts for about one-fifth of GDP, the country has also benefitted from significant investment, a critical economic building block. This growth in investment has stemmed from its place as a growing services exporter, expanding more than 85% between 2010-2022. Importantly, the merits of this impressive and hard-fought economic recovery have begun to bear fruit on the international stage, with the country having recently regained its investment grade status more than 12 years after losing it during the Euro area's sovereign debt crisis. This would structurally lower the cost of borrowing for the government and allow for a stable funding base for the country's future needs. 

Elsewhere, Turkey's recent elections saw President Erdoğan defeat opposition leader Kemal Kılıçdaroğlu to extend his rule to a third decade. While international investor confidence in Turkey is vulnerable to a variety of factors, recent indications that the Erdoğan administration may be taking a more orthodox stance have been welcomed, with the hiring of Mehmet Şimşek, a former deputy prime minister well regarded by investors as the finance and treasury chief. Thus far we have seen Erdogan pivot away from prior policies which have damaged the economic standing of the country amid runaway inflation, with what now appears to be a President and central bank more united in a drive to control price pressures. Since Şimşek's appointment, the central bank have raised interest rates from 8.5% to 40%, and by doing so have laid the foundations for trust, in a nascent sign that clearer and more consistent economic policies may yet continue.

Keeping the Lights On - South Africa

While recent months have seen headlines focus on rising temperatures across Europe, in what has been the hottest summer on earth since records began, South Africa was heading into its winter season with the prospect of the country's worst ever power cuts. While power shortages are not uncommon in South Africa, a number of operational problems at state energy supplier Eskom caused higher-than-usual rates of `unplanned outages'. In response, power consumption was managed by significant "Load Shedding", which refers to strategic blackouts where citizens are left without power for between six to twelve hours a day in order to ease pressure on the grid, allowing electricity to be provided for key services.

The impact of this practice has been significant, acting as an economic drag, particularly for industries where re- scheduling operations is unfeasible - such as retailers and telecommunications services - as lower footfall in shops and loss of service on phone networks has impacted profit margins. While these problems have showed signs of easing recently, the considerable disruption caused has reignited debate regarding the future of South Africa's energy infrastructure. With power outages persisting in the region as far back as 2007, South Africa is increasingly turning to the private sector to resolve its chronic shortages by making it easier for companies to build plants and paying households and businesses to produce electricity from renewable sources. This is crucial given that Africa boasts the fastest growing population in the world, and where cost-efficient sustainable energy sources will be vital to the continent's socioeconomic development. The growth in private generating capacity and energy storage solutions has the potential to transform the African continent by enabling it to capitalise on its rich renewable energy resources, notably its wealth of wind, sunshine, and water.

Portfolio Country Weight (%)

Source: Barings. September 2023.

Portfolio Sector Weight (%)

Source: Barings. September 2023.

Rise of the Middle Powers - Middle East

Whilst not a new concept, the idea of "middle powers" countries which whilst not great powers, are characterised as having heft, in economic, geographic, or demographic terms is gaining prominence in an increasingly polarised world. Here, two Middle Eastern powerhouses: Saudi Arabia, the world's top oil exporter, and the United Arab Emirates (UAE), the region's dominant trade hub, have seen their economies buoyed by rising energy prices, and are determined to chart their own courses in an era of shifting global dynamics as non-aligned middle powers. Examples of this have included Saudi Arabia acting as a mediator between Russia and Ukraine, while the UAE hosts this year's global climate summit, COP28. This shift on the international stage has significance, with the Middle East able to wield its influence as a strategic trading partner, due to its vast global oil and gas reserves and position between Europe, Asia and Africa.

Exemplifying this shift, until recently the BRICS nations (Brazil, Russia, India, China and South Africa) had members from every corner of the developing world except the Middle East. As of August, however, this has changed, with the announcement that from the start of 2024 admission will extend to a further six countries, including Saudi Arabia and the United Arab Emirates. This  change highlights how these emerging economies are seeking a bigger role by using the bloc as a countervailing force to Western groupings, such as the G7.

Recent Escalation between Israel and Hamas

Whilst occurring after the end of the Company's financial year, we are monitoring risks arising from the conflict between Israel and Hamas. Although there has been no direct impact on the investments within your portfolio, we have witnessed selling pressure across markets globally and the EMEA region, as sentiment has been damaged and geopolitical risk heightened. While Israel is not a major oil producer, any prospect of escalation will likely raise risk premia in markets, which has the potential to keep the oil price elevated. This is especially true if Iran becomes directly involved in the conflict. Whilst the situation is unfolding, we have reduced exposure across some positions in the Middle East.

Company Selection

Our team regularly engages with management teams and analyses industry competitors to gain an insight into a company's business model and sustainable competitive advantages. Based on this analysis, we seek to take advantage of these perceived inefficiencies through our in-depth fundamental research, which includes an integrated Environmental, Social and Governance (ESG) assessment, and active engagement, to identify and unlock mispriced growth opportunities for our shareholders.

The portfolio's outperformance relative to the benchmark was driven almost entirely by stock selection, with holdings in the Financials, Industrials and Real Estate sectors contributing most significantly to relative returns.

Financials continue to represent the largest sector exposure in the portfolio. This is not a top-down allocation but instead reflects the compelling bottom-up stock picking opportunities we continue to find in the space. Across Emerging Europe, we hold a number of attractive investments in companies with strong underlying growth potential operating in an environment that is sheltered from intense competition. Similarly, we own a number of banks in the Middle East that continue to see attractive loan growth and in some cases benefit from various government subsidies.

Eastern European financials were some of the portfolio's best performers. In Poland, insurance company PZU outperformed following strong earnings underpinned by much-improved insurance policy pricing dynamics a function of the substantial real income growth over the last decade, Polish car owners increasingly opt for higher margin Motor-Own-Damage policies, which is increasing PZU's written premium growth and profitability. Greek bank NBG was another strong performer, helped by improving domestic macroeconomic backdrop, the higher interest rate environment and healthy corporate loan growth. Hungarian bank OTP also outperformed, helped in part by the company's successful expansion of its business into a number of frontier markets, providing opportunities for future growth.

In contrast, holdings in Middle Eastern banks underperformed over the year. Saudi Arabian bank SNB and Qatar-based QNB were two of the weakest performers, partly reflecting the more muted economic growth outlook across the region, and lower average oil price. Shares in SNB also suffered weakness in response to its investment in Credit Suisse, which was viewed negatively by investors. Holdings in both SNB and QNB were reduced over the year.

Stock selection in the Industrials sector also contributed positively to relative performance, driven by the holding in Turkish conglomerate Koç Holding. The company's earnings have been strong, driven by its automotive subsidiary Ford Otosan that produces 75% of all commercial vehicles sold in Europe, and is benefitting from a material uptick in

export volumes.

In the Real Estate sector, leading United Arab Emirates developer Aldar outperformed, as a booming domestic property market has created order backlogs and increased prices. This is underpinning strong company earnings, with robust operating trends across multiple business units.

Stock selection across a number of sectors in South Africa was weak over the period. South African mining group Anglo American Platinum underperformed, reflecting a weaker production outlook and near-term earnings weakness in light of energy rationing. Despite the recent weakness, we continue to hold the company, and in our view, the long-term investment case remains compelling, underpinned by the company's exposure to metals required for the energy transition. Discount fashion retailer Mr Price also underperformed, as problems with South Africa's electricity supply have disrupted trading conditions. In contrast, the holding in technology investment group Prosus contributed positively to relative returns, helped by a recovery in performance from Chinese internet company Tencent, in which Prosus owns a significant stake.

Outlook

In the short term, global equity markets are likely to remain volatile as investors weigh up a potential peak in monetary tightening later this year by the Federal Reserve against a back-drop of deteriorating corporate earnings.

The outlook for emerging markets, however, is more constructive as the policy cycle has also already peaked in many countries and in some is already easing again. China's re-opening and policy stimulus should help lift economic activity globally, which should support a recovery in corporate earnings in 2024 and beyond.

Markets in the Middle East are likely to be volatile over the coming months as sentiment has been negatively impacted by the recent Israel-Hamas conflict. This has renewed concerns of supply disruption in the energy market, which, along with supply cuts, have kept the oil price higher than it might otherwise have been. Looking further ahead, we continue to believe there is a great potential for long term structural growth as the region further diversifies its economies. 

The South African economy remains challenged as issues with the country's electricity supply have significantly impacted how businesses have been able to function. This remains a major issue for the country, and therefore we continue to be highly selective with our exposure. We do, however, believe there are some green shoots of recovery emerging with the potential for domestic consumption to pick up as inflation falls.

 A subdued European growth outlook makes us wary of the economic slowdown that may be experienced by the small, open economies of central Europe. However, this will allow for the cooling of tight labour markets, paving the way for lower inflation readings. Importantly, larger economies such as Poland are set to benefit from the continued rise in services exports, making it an export powerhouse within Europe, and in turn, raising the wealth of citizens, improving disposable incomes and consumption patterns.

In Turkey, recent moves towards more orthodox monetary policy have rightly been rewarded by the market but, with inflation still running above 50% and the Lira at record lows, many hurdles remain. If policymakers continue on this path then economic progress will likely follow, with job creation supported by a large and young population and business leaders that have honed their skill set in a rapidly expanding domestic economy.

We expect Greece to continue to successfully attract investment in its service sector-based economy whilst the recent upgrade of its sovereign risk to investment grade status should prompt a period of high activity on the Athens exchange. This is likely to involve prominent IPOs and the placement of stakes in the Greek banking sector, currently held by the Hellenic Financial Stability Fund.

Whilst we expect markets to continue to be volatile over the coming months, we believe there are reasons to be optimistic for EMEA equities and the diversification benefits the asset class can provide to a portfolio. In this context, we will continue our process of building new or adding to existing positions in companies with strong and sustainable business franchises where our proprietary bottom-up research has identified a significant degree of undervaluation relative to their future growth potential.

A Focus on ESG

Our proprietary ESG assessment forms a core component of our fundamental bottom-up research. It is guided by our in-depth knowledge and regular interactions with company management teams.

As an integral step of our research, our ESG assessment is undertaken by our equity investment professionals as a fully integrated component of our investment process. This approach to ESG is anchored by three pillars:

• Integration - Integrating ESG is core to our fundamental research and allows us to better assess the risks and opportunities for our investments that are not apparent in traditional finance analysis. This influences both our quality assessment of a company as well as its valuation and is therefore integral to decision making.

• A dynamic, forward-looking approach - Our proprietary assessment is aimed at capturing improving or deteriorating standards to highlight and reward more sustainable business practices, rather than relying on static assessments from third parties. 

• Active engagement over exclusion - We aim to drive positive outcomes through direct engagement with corporate management teams rather than relying on blanket exclusions, potentially unlocking value for our investors. 

Engagement Case Study: FirstRand (South African Bank)

We regularly engage with companies with the aim of improving corporate behaviour or enhancing

disclosure levels.

To ensure consistency of research we utilise a standardised proprietary assessment framework to capture ESG attributes of each

individual company under research coverage (see Chart A opposite).

Chart A - Fundamental Research: Example ESG Assessment

ESG and its impact on the company valuation

ESG influences the company specific risk premium that forms a portion of the overall discount rate attributed to the company for the purposes of valuation and identifying a potential mispricing. Each company under research coverage will be assessed by the relevant investment professional using a dynamic framework, where the nine ESG sub-categories will each be assigned one of the following ratings:

Each sub-category is equally weighted and the sum of the nine ratings will translate into either a positive or negative adjustment ranging from -1% to +2% to the company's Cost of Equity ("COE"), to the company's Cost of Equity ("COE"), which is used to discount our earnings forecasts. In addition, we have recently introduced a Carbon Cost assessment for relevant companies that we anticipate will be impacted by costs associated with reducing greenhouse gas (GHG) emissions, which can add a further 2% to the company's COE.

Baring Asset Management Limited

Investment Manager

7 December 2023

Detailed Information

Barings Emerging EMEA Opportunities PLC's annual report and accounts for the year ended 30 September 2023 is available at https://www.barings.com/en-gb/investment-trust/the-trust/financial-statements and will be available today, along with the notice of meeting for the Company's AGM on https://www.barings.com/en-gb/investment-trust/the-trust/corporate-documents.

It has also been submitted in full unedited text to the Financial Conduct Authority's National Storage Mechanism and is available for inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism in accordance with DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules.

For any enquiries please contact: 

Quill PR +44 (0)20 7466 5050

Nick Croysdill, Andreea Caraveteanu 

About Barings Emerging EMEA Opportunities PLC

"Finding quality companies from Emerging Europe, the Middle East and Africa."

Barings Emerging EMEA Opportunities PLC (the "Company") is a UK based investment trust that was launched on 18 December 2002 and is managed by Baring Fund Managers Limited.

In November 2020, the Company broadened its investment policy to focus on growth and income from quality companies in the Emerging Europe, Middle East and Africa ("EMEA") region. It also changed its name from Baring Emerging Europe PLC to Barings Emerging EMEA Opportunities PLC at the same time.

For more information, and to sign up for regular updates, please visit the Company's website: www.bemoplc.com

LEI: 213800HLE2UOSVAP2Y69

ENDS

Neither the contents of the Company's website nor the contents of any website accessible from hyperlinks on the website (or any website) is incorporated into, or forms part of, this announcement.