# Fidelity FEML: Reasons to be positive on emerging markets investing

- Link: https://www.directorstalkinterviews.com/reasons-to-be-positive-on-emerging-markets-investing/4121107690
- Published: 2023-02-24T07:34:09+00:00
- Author: Amilia Stone

Emerging markets faced a confluence of challenges in 2022 that resulted in a dramatic
derating of the asset class. However, an increasingly supportive environment, led
by China’s earlier-than-expected economic reopening, signs of moderating inflation,
and a weaker dollar, is encouraging. Against this backdrop, **[Fidelity Emerging Markets Limited](https://www.directorstalkinterviews.com/company/fidelity-emerging-markets-limited/feml.l)**(
[LON:FEML](https://www.directorstalkinterviews.com/company/fidelity-emerging-markets-limited/feml.l))
portfolio manager Nick Price outlines the areas of opportunity that he is currently
seeing among high-quality companies that he believes are trading at compelling valuations
across these diverse markets.

**China’s reopening rebound**

As China reopens following three years of strict Covid curbs, we expect to see a
strong consumer recovery on the back of high levels of excess household savings 
and cheap mortgage rates. We are also seeing a considerably more accommodative regulatory
backdrop than that witnessed throughout last year, with Chinese policy expected 
to remain supportive throughout 2023.

As the largest single market in our universe, China plays a central role in influencing
sentiment towards the emerging market asset class and in driving the performance
of the index in aggregate. With the country in full reopening mode, we expect the
outlook for emerging markets to continue to improve.

At the end of last year, with signs that Beijing was beginning to ease policy, we
started to add to China, and continued to do so after it became clear that the country
was abandoning its zero-Covid policy. We made additions across a series of names
including internet stocks, re-opening plays, and small allocations to real estate
related businesses.

**Emerging opportunities in financials**

At the sector level, financials remain our overweight positive relative to the MSCI
Emerging Marketing Index. A more hawkish European Central Bank is giving rise to
new opportunities in Central Eastern Europe, where we see selected opportunities
given cheap valuations and decent dividend yields. An example here would be Austrian
bank Erste Group. While we are nearer to the end of the rate rising cycle than the
beginning, rates are likely to remain higher than the preceding five years, which
benefits net interest margins for overcapitalised, deposit-heavy banks.

**Navigating what lies ahead**

Over the past decade we have fine-tuned a strategy that utilises a suite of investment
attributes to uncover opportunities in this vast universe. The ability to complement
long investments with carefully selected short positions provides additional sources
of returns and is supported by our extensive global network of research analysts.
For the long investments, we are resolutely focused on identifying dominant franchises
that can take advantage of structural growth opportunities. For short positions,
we target the weakest stocks most exposed to competitive threats and financial distress.

While the asset class and portfolio have faced headwinds over the past year, we 
are broadly constructive about what lies ahead. Emerging market equities are cheap
both on an absolute and relative basis and are currently trading at a deep discount
relative to history. We believe the recent weakening of the dollar and China’s strong
reopening story will also be supportive for emerging market assets.

In an uncertain market, our emphasis remains on what we do best. We continue to 
cast the net wide and look for opportunities in areas of the market that offer up
quality at an attractive price.

**Fidelity Emerging Markets Limited** (LON:FEML) is an investment trust that aims
to achieve long-term capital growth from an actively managed portfolio made up primarily
of securities and financial instruments providing exposure to emerging markets companies,
both listed and unlisted.

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