Half-year Report

RNS Number : 6074P

Templeton Emerging Markets IT PLC

18 November 2016

 

TEMPLETON EMERGING MARKETS INVESTMENT TRUST PLC

("TEMIT") ("the Company")

UNAUDITED HALF YEARLY REPORT TO 30 SEPTEMBER 2016

Chairman's Statement

Market Overview and Investment Performance

The six months under review saw a strong recovery in the performance of emerging markets. For UK based investors, this was accentuated by a substantial fall in the value of sterling following the result of the UK referendum to leave the European Union, leading to a marked increase of the value of overseas investments in sterling terms.

The table on page 1 sets out performance over the half year under review and over other key time periods. The Investment Manager reports in detail on the portfolio in the following pages. In particular, I would like to record that 30 September 2016 marks the first anniversary of the appointment of Carlos Hardenberg as lead portfolio manager of TEMIT, supported by Chetan Sehgal. Carlos has made an excellent start, with a NAV total return of 49% over the 12 months, compared with a benchmark total return of 37% (both in sterling terms). It would be unwise to expect such levels of both absolute and relative returns to be repeated regularly, but nevertheless the Board has confidence in the abilities of Carlos and the broader team at Franklin Templeton which supports him.

Revenue Earnings and Dividend

A dividend of 8.25 pence per share for the year ended 31 March 2016 was paid on 22 July 2016. TEMIT does not pay an interim dividend.

Revenue Earnings per share for the first half of the year were 5.18 pence per share, which is an increase of 6.4% over the same period last year. At the time of writing it is difficult to predict the level of net revenue income for the full year. The Company's expenses vary as over 90% of all costs, which are payable from our earnings, are subject to the movements in the net assets of the Company. The Directors will not make a dividend forecast at this stage but note that the Company has significant retained revenue reserves.

Managing the Discount

During the half year under review the Company's shares traded at discounts which ranged between 10.4% and 15.3%.

The Company continues to use share buy backs as a means of limiting volatility in the discount and over the half year has bought back shares on an almost daily basis. In total, we have bought back 9,953,371 shares at an average discount of 11.9%. An effect of buying back these shares at discounts to the prevailing NAV was to increase the NAV per share for remaining shareholders by 0.5%. We hope that if performance continues to improve this will lead to greater natural demand for the Company's shares.

Borrowing

As part of the Company's investment objective and policy, the Company may borrow up to 10% of its net assets. The Board previously envisaged such borrowings only being used in exceptional circumstances and for a short period; during the last 5 years the Board has not utilised any short term borrowing facility. The Board has debated the merits of the Company borrowing with the aim of increasing investment returns. While we recognise that gearing increases volatility, we have concluded that it may be in shareholders' interests to borrow at a time when the outlook for emerging markets remains positive and interest rates are low.

The Company is in detailed negotiation with a major international bank, which we expect will lead to a revolving credit facility to borrow up to £150 million. This facility will permit potential gearing of up to 7.8% of net assets as at the date of this report.

The Board

In the Annual Report, I stated that the Board has a succession plan which will see a number of changes over the next few years. As set out in the Annual Report, Simon Jeffreys duly joined the Board at the conclusion of the Annual General Meeting in July 2016.

The next stage in this plan was that David Graham joined the Board on 1 September 2016. David is a Chartered Accountant whose career has been mainly in investment management, with BlackRock and Lazard Investors. He has worked in Sydney, Hong Kong and Tokyo and served on the boards of domestic investment management companies in India, China, Thailand and Taiwan.

Outlook

It is encouraging to have witnessed strong investment returns over the last twelve months and it is apparent that interest among international investors in emerging markets has grown over that period. Investment is not without risk and political events such as the recent vote by the UK to leave the European Union and the possible effect of the US presidential election could well lead to volatility in investor sentiment and hence in share prices and currencies. However, the long term case for investing in emerging markets is strong and we remain encouraged by the Manager's improved investment performance.

Paul Manduca

Chairman

18 November 2016

Interim Management Report

Principal risks and uncertainties

The Company invests, where possible, directly in the stock markets of emerging markets. Its principal risks and uncertainties are therefore:

•     Investment and Concentration risk;

•     Market risk;

•     Foreign currency risk;

•     Credit risk;

•     Operational and Custody risk;

•     Key personnel;

•     Diversity; and

•     Regulatory risk.

The Board has provided the Investment Manager with guidelines and limits for the management of these principal risks and uncertainties. Further information on these is given in the Strategic Report within the Annual Report and Audited Accounts for the year ended 31 March 2016, which is available on the Company's website (www.temit.co.uk). In the Board's view, these principal risks and uncertainties are equally applicable to the remaining six months of the financial year as they were to the six months under review.

Related party transactions

There were no transactions with related parties other than the fees paid to the Directors, during the six months ended 30 September 2016 which have a material effect on the results or the financial position of the Company. Under the AIC SORP November 2014, the Franklin Templeton entities are not classified as related parties under IAS 24 (as adopted by the EU).

Going concern

The Company's assets consist of equity shares in companies listed on recognised stock exchanges and in most circumstances are realisable within a short timescale. Having made suitable enquiries, including considerations of the Company's investment objective, the nature of the portfolio, expenditure forecasts and the principal risks and uncertainties, the Directors are satisfied that the Company has adequate resources to continue to operate as a going concern for the foreseeable future and, as such, a going concern basis is appropriate in preparing the Financial Statements.

Statement of Directors' Responsibilities

The Disclosure and Transparency Rules of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.

The Directors confirm that to the best of their knowledge:

(a)  the condensed set of financial statements, for the period ended 30 September 2016, have been prepared in accordance with the applicable International Accounting Standard (IAS) 34 ''Interim Financial Reporting'' as adopted by the EU; and

(b) the Half Yearly Report includes a fair review of the information required by:

(i)   DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements, and a description of the principal risks and uncertainties for the remaining six months of the year; and

(ii)  DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period, and any changes in the related party transactions described in the last annual report that could do so.

The Half Yearly Report was approved by the Board on 18 November 2016 and the above responsibility statement was signed on its behalf by

Paul Manduca

Chairman

18 November 2016

Investment Manager's Report & Portfolio Review

Market Overview

Emerging markets are coming out of a "perfect storm" in which a number of factors had come together to depress markets over the past few years. After a gloomy start to 2016, emerging market equities have entered an upward trend which started in May 2016 and have seen strong fund inflows in recent months, as investors search for higher returns than those available in other asset classes. This has led emerging markets to outperform developed markets. We have seen a number of factors combine to make emerging markets an attractive asset class for investors to consider at this moment in time and for the future. The US dollar has stabilised, and this has largely benefitted emerging markets as it reduces the threat of a US dollar-denominated debt crisis. Many companies in emerging markets have issued debt in US dollars, making it harder to repay if the US dollar strengthens. Many emerging market countries are also making meaningful progress in structural reforms to stimulate growth and earnings. Moreover, there have also been signs of stability after a slowdown in the rate of growth in China's economy.

For investors based in the UK, the largely unexpected outcome of the "Brexit" vote has resulted in marked weakness in sterling, supporting a strong absolute performance in TEMIT's NAV and share price.

China and India recorded strong economic growth rates in the first half of 2016, with growth in the Indian economy continuing to outpace that of China. Russia's GDP recorded its best performance in 18 months with a better-than-expected second quarter decline, signalling a possible bottoming-out. The Brazilian economy, however, contracted for the ninth consecutive quarter in the three-month period ended June.

In the coming decades, successful emerging market enterprises and even countries are likely to be mostly those that secure pole position in the global race towards higher and more advanced technology development and adoption. A lot of ground breaking innovations in "bricks and mortar" industries such as retail, finance, and manufacturing are causing a tectonic shift in the global economy and, for the first time, companies based in emerging markets such as China, Taiwan, South Korea and others are among the leaders. Already today we observe, for instance, some of the most sophisticated components for advanced and ultra-light weight vehicles are made by emerging market firms. Modern power sources are being developed in emerging markets, branchless banking is being rolled out and e-commerce and online learning are widely adopted by emerging market consumers. We see opportunities both in some of the largest players such as Samsung Electronics^(a) and Taiwan Semiconductor Manufacturing ("TSMC") as well as specialist, smaller niche players with world leading technology.

^(a)     After the reporting period ended Samsung reported the withdrawal of its Galaxy Note 7, which is Samsung's "phablet" phone/tablet following a series of issues. Note that this product is not Samsung's core smartphone, the Galaxy S7. The withdrawal did cause Samsung's share price to fall. Despite these testing times, we remain positive on Samsung on a long term perspective as the company has a good product mix which generates high profitability and a number of leading market positions both in its large domestic market and globally. We will, however, continue to monitor the situation closely, particularly how the failure of this niche product impacts the brand's reputation and other successful parts of the business.

Performance Attribution

As can be seen from the table below TEMIT's outperformance of the benchmark in the past six months was driven primarily by stock selection.

Performance Attribution Analysis %

Six Months to 30 September 2016

Total Return (Net)(a)	29.6
Expenses(b)	0.6
Total Return (Gross)(c)	30.2
Benchmark Total Return(d)	21.7
Excess Return(e)	8.5
Sector Allocation	0.2
Stock Selection	7.9
Currency	0.4
Total Portfolio Manager Contribution	8.5

^(a)     Total Return (Net) is the NAV return inclusive of dividends reinvested.

^(b)     Expenses incurred by the Company for the six months to 30 September 2016.

^(c)     Gross Return is Total Return (Net) plus expenses. This is preferable for attribution analysis and other value-added reporting as it evaluates the contribution of the Investment Manager.

^(d)     MSCI Emerging Markets (Total Return) Index, inclusive of dividends reinvested. Indices are comparable to gross returns as they include no expenses.

^(e)     Excess return is the difference between the gross return of the portfolio and the return of the benchmark.

Source: FactSet and Franklin Templeton Investments.

Largest Company Relative Contributors to Performance

For the period 31 March 2016 to 30 September 2016

			% Relative
	% Share Price		Contribution to
Largest Company Contributors	Total Return		Portfolio
Buenaventura, ADR	108.4		2.0
Banco Bradesco, ADR(a)	49.8		0.7
M. Dias Branco	143.1		0.7
NetEase, ADR	87.3		0.6
Itaú Unibanco, ADR(a)	42.8		0.6
CIA Hering(a)	55.9		0.4
Kumba Iron Ore(a)(b)	59.9		0.4
Samsung Electronics	40.6		0.4
Naspers, N	37.8		0.3
Yandex(a)	52.3		0.3

^(a)   Security not included in the MSCI Emerging Markets Index.

^(b)   Total sale during the period.

Buenaventura is the largest precious metals company in Peru and a major holder of mining rights in the country. It is engaged in the mining, processing, development and exploration primarily for gold and silver, as well as zinc, lead and copper. The company reported strong second-quarter results, driven by improved production and lower costs. A rebound in metal prices further supported sentiment in the stock.

Banco Bradesco is one of Brazil's biggest financial conglomerates, providing a full range of banking and financial services. Second quarter earnings were in line with market expectations, but concerns about asset quality led to higher provisioning. The initiation of impeachment proceedings against President Dilma Rousseff, which required her to step down for up to 180 days pending the result, boosted investor confidence on rising hopes on Vice President Michel Temer, who took over as the country's acting president. The stock participated in the substantial rally in Brazilian stocks during the reporting period, as appreciation in the Brazilian currency (the real), an improvement in business sentiment and generally positive economic data further supported equity prices in Brazil.

M. Dias Branco is Brazil's leading manufacturer and seller of cookies, crackers and pasta. In addition to benefitting from greater investor confidence in the Brazilian equity market, strong second quarter sales and earnings boded well for the company.

TEMIT's holdings in all three stocks were trimmed during the period to take profits and reinvest in stocks that we believe offer stronger opportunities for future growth.

Largest Company Detractors to Relative Performance

For the period 31 March 2016 to 30 September 2016

			% Relative
	% Share Price		Contribution to
Largest Company Detractors	Total Return		Portfolio
Mail.Ru, GDR(a)	(10.4	)	(0.3	)
iMarketKorea(a)	(21.8	)	(0.2	)
KCB Group(a)	(20.8	)	(0.2	)
América Móvil, ADR(a)	(17.4	)	(0.2	)
China International Marine Containers	(13.3	)	(0.2	)
Youngone(a)	(11.2	)	(0.2	)
Daelim Industrial	5.2		(0.2	)
China Construction Bank(b)	-		(0.2	)
Petroleo Brasileiro, ADR(b)	-		(0.2	)
Sberbank of Russia(b)	-		(0.2	)

^(a)     Security not included in the MSCI Emerging Markets Index.

^(b)     Security not held by TEMIT.

Mail.Ru is one of the largest internet companies in Russia which operates social networking sites, instant messaging ("IM") networks, email services and internet portals. Disappointing first half results, with profitability impacted by higher marketing costs to promote games, and a cautious management outlook for the second half of 2016 weighed on the share price performance. Weakness in the Russian economy also impacted consumer spending, affecting gaming revenues. We increased our position in the stock due to its dominant market position in Russia and merger and acquisition potential.

iMarket Korea is a procurement outsourcing company based on a B2B e-Marketplace platform. Its main business is to purchase materials, tools and equipment that are used for companies' MRO (Maintenance, Repair and Operation), and to supply those to companies and industries so that they can enhance the efficiency of purchase processes and lower costs. Disappointing first quarter results and concerns about a slowdown in business revenues from the Samsung group, a key client, affected the share price in the earlier part of the reporting period. However, an improvement in the operating profit margin and an increase in revenues from Samsung in the second quarter led the shares to rebound off its period-lows in the latter part of the period. Taking a long-term view on the stock, we continue to maintain our holding.

KCB Group is one of Kenya's largest banks in terms of assets, providing both retail and commercial banking services. The recent decision by the Kenyan Central Bank to cap lending rates depressed prices of all listed banks and raised many questions on how the decision would affect the sector's performance. Deterioration in asset quality and uncertainty surrounding a possible rights issue also impacted investor confidence. However, news that the company was in talks with companies such as Facebook, Apple and Alibaba on digital payments collaboration led the share price to rebound from its period-low at the end of the reporting period. We used the correction as an opportunity to increase our holding as the valuations became relatively more attractive.

Sector Contributors and Detractors

With the exception of industrials, which mildly detracted, all of the sectors had a positive impact on relative performance. Stock selection in materials, information technology (where an overweight position also helped), financials, consumer discretionary and staples contributed the most to performance. A rebound in commodity prices, improving investor confidence in emerging markets and demand for consumer goods and services supported the performance of these sectors. Positions in the industrials sector were increased during the period.

Geographical Contributors and Detractors

Geographically, stock selection and allocation in Peru (overweight relative to the Index), Brazil (overweight) and South Africa (underweight) supported relative returns. Underweight exposures to Mexico and Malaysia, where TEMIT had no holdings, also generated positive attribution returns. In contrast, our overweight positions in Kenya, which is not part of the benchmark index, and Russia, had a negative impact. Exposure to Brazil, South Africa, Russia, Kenya and Mexico have been reduced during the period.

Investment Strategy

While attention has been on a turnaround in sentiment over recent months, it is important to emphasise that we invest for the long term. As well as looking at the current situation, we focus in particular on how we expect a company to develop over the next five years or more, and what that indicates for value in the current share price. This means that as "value investors" we can, and do, invest, for example, in fast growing technology companies where we see a disconnect between current market values and potential.

Emerging economies in general are some of the world's most vibrant and fastest-growing economies. However, we believe that the challenges faced by some countries, sectors and companies, such as commodity or utility firms and the Chinese financial or real estate sectors, have at times obscured in investors' minds interesting opportunities within the emerging markets space.

For example, we believe that some mid-sized and smaller companies within emerging markets offer strong growth potential at attractive valuations. We also view this area as one that is overlooked by most investors, in part due to misconceptions regarding volatility, liquidity and scale. Further, there are several key positive attributes of emerging market small/mid-caps, both structural and tactical, which in aggregate we think support the inclusion of this asset class in TEMIT's investment portfolio.

In terms of markets, we are particularly interested in China at the moment following improving sentiment in the region. We are focused on the internet and technology sectors as we have found that many companies can enjoy strong structural growth as the economy shifts towards more online transactions, shopping and services. We also like some consumer-oriented companies, especially in the automobile sector and in sportswear. We look for opportunities in selected industries (largely those that are geared towards increasing consumption) that have gone through a consolidation, industries where barriers to entry have increased and where the competitive environment has become more benign.

Portfolio Changes

A full list of the portfolio holdings, sector and geographic breakdowns as at 30 September 2016 can be found on pages 14 to 20 of this report.

The current market volatility has allowed us to take advantage of some interesting opportunities, enabling us to reduce concentration and widen TEMIT's exposure to new areas. The Company now has investments in 97 companies compared with 56 companies as at 30 September 2015.

Information technology companies are particularly attractive in the current environment, especially as technology is becoming more integral and competitive in emerging markets. Taking a five-year view, the recent market correction has brought valuations down, in some cases, to more reasonable levels allowing us to invest in a number of information technology companies that would not previously have met our value criteria. In addition to adding Alibaba, one of the largest online and mobile commerce companies in the world, and Sunny Optical Technology, a major Chinese manufacturer of optical-related products, we also increased our holding in existing positions in Naspers, a global internet and entertainment group, Taiwan Semiconductor Manufacturing, the world's largest independent integrated circuit foundry, Mail.Ru, one of the biggest internet companies in Russia, as well as the leading global electronics manufacturer, Samsung Electronics. Our management style focuses on the prospects of individual stocks and in order to focus on the opportunities above we sold our holdings in SK Hynix in South Korea and VTech in Hong Kong, as well as reducing our positions in Tata Consultancy Services in India, and NetEase and Baidu in China.

Concerns about over-supply, demand and easing growth in major economies including China and India resulted in increased volatility in commodity prices in recent years. The prices of many commodities reached multi-year lows in early 2016, but are now showing signs of bottoming out. Selected commodity shares became even more attractively valued, especially as companies have begun to focus on streamlining and implementing cost-cutting measures to remain competitive. Elimination of excess capacity and closures of unproductive and inefficient companies also bode well for market leaders. An analysis of energy and materials companies in the portfolio and emerging markets universe and continuing review of our assumptions on price, demand and supply trends in commodities led us to reposition our holdings in these sectors. TEMIT added Saudi Basic Industries Corporation ("SABIC"), one of the largest petrochemical world producers and the principal steel manufacturer in the Middle East; Norilsk Nickel, the world's biggest nickel and palladium producer and one of the largest global producers of platinum; LUKOIL, a major Russian oil company; Inner Mongolia Yitai Coal, a key coal producer in China; POSCO, a leading South Korean steel producer; and Industrias Peñoles, the world's main producer of refined silver, and miner of precious metals including gold, to the portfolio. In repositioning the commodities exposure in the portfolio, we sold out of or reduced positions in Oil & Gas Development in Pakistan, Oil & Natural Gas in India, Petroleo Brasileiro and Duratex in Brazil, and conglomerate SK Innovation in South Korea, among others.

Another key theme in the emerging markets universe is the middle class population. We have been stressing the importance of the middle class consumer for a while now. They are becoming a very important contributor to growth in emerging markets. Moreover, we have seen a transition in the demands and wishes of the middle class population in emerging markets. The "new" middle class is no longer spending all of their income on necessities. They have reached a point where they are able to incur discretionary spending. Companies catering to consumers have been experiencing significant growth and this is expected to continue. Consumer spending, to us, not only includes consumer goods but also services such as banking, finance, and telecommunications. While easing global growth has interrupted the momentum in some countries, we expect the long-term growth in consumption in emerging markets to continue. Key additions included IMAX, one of the world's leading entertainment technology companies, specializing in immersive motion picture technologies; Ping An Insurance Group, a major insurance company in China; BRF, Brazil's leading food company; Hyundai Wia, a South Korean automotive components manufacturer; and Hite Jinro, a distiller in South Korea and the world's primary producer of soju. To raise funds for these opportunities and continue to ensure that the portfolio is adequately diversified, we reduced our holdings in the financial sector, where sales included Banco Bradesco, Itaú Unibanco and BM&F Bovespa in Brazil, MCB Bank in Pakistan, and Akbank in Turkey.

Full details of all the portfolio changes in the reporting period including new purchases, increases to existing holdings and partial or total sales are listed below.

New Purchases
Security	Country	Sector	Amount £(m)
Norilsk Nickel, ADR	Russia	Materials	21
Alibaba, ADR	Hong Kong/China	Information Technology	21
SABIC, Participatory Note	Saudi Arabia	Materials	20
LUKOIL, ADR	Russia	Energy	17
IMAX	United States	Consumer Discretionary	14
Ping An Insurance Group	Hong Kong/China	Financials	10
BRF	Brazil	Consumer Staples	10
Hyundai Wia	South Korea	Consumer Discretionary	7
Equity Group	Kenya	Financials	7

Security	Country	Sector	Amount £(m)
Bloomage Biotechnology	Hong Kong/China	Health Care	7
Hite Jinro	South Korea	Consumer Staples	6
Sunny Optical Technology	Hong Kong/China	Information Technology	5
Moneta Money Bank	Czech Republic	Financials	5
BDO Unibank	Philippines	Financials	5
Other (5 securities)			12
Total			167
Increased Holding
Security	Country	Sector		Amount £(m)
Naspers, N	South Africa	Consumer Discretionary		22
Taiwan Semiconductor Manufacturing	Taiwan	Information Technology		10
Mail.Ru, GDR	Russia	Information Technology		9
Samsung Electronics	South Korea	Information Technology		9
KCB Group	Kenya	Financials		8
Gedeon Richter	Hungary	Health Care		6
Daelim Industrial	South Korea	Industrials		6
Hanon Systems	South Korea	Consumer Discretionary		5
Other (15 securities)				23
Total				98
Partial Sale
Security	Country	Sector		Amount £(m)
Banco Bradesco, ADR	Brazil	Financials		41
Tata Consultancy Services	India	Information Technology		21
Guangzhou Automobile Group	Hong Kong/China	Consumer Discretionary		18
MCB Bank	Pakistan	Financials		17
Akbank	Turkey	Financials		16
Oil & Natural Gas	India	Energy		11
NetEase, ADR(a)	Hong Kong/China	Information Technology		10
Baidu, ADR	Hong Kong/China	Information Technology		9
Dairy Farm	Hong Kong/China	Consumer Staples		8
M. Dias Branco	Brazil	Consumer Staples		8
Itaú Unibanco, ADR	Brazil	Financials		7
Unilever	United Kingdom	Consumer Staples		7
MTN Group(a)	South Africa	Telecommunication Services		5
Other (7 securities)				15
Total				193

^(a)     Security was an increased holding and sold during the period.

Total Sale
Security	Country	Sector	Amount £(m)
SK Hynix	South Korea	Information Technology	32
Oil & Gas Development	Pakistan	Energy	17
Kumba Iron Ore	South Africa	Materials	15
VTech	Hong Kong/China	Information Technology	13
Dr. Reddy's Laboratories(a)	India	Health Care	12
Petroleo Brasileiro, ADR	Brazil	Energy	9
Impala Platinum	South Africa	Materials	6
Other (3 securities)			7
Total			111

^(a)     Security was purchased and sold during the period.

Portfolio Holdings by Geography

As at 30 September 2016

Geographical analysis (by country of risk)

				Fair Value		% of Issued		MSCI Index	(a)	% of net
Country		Sector		£'000		Share Class		Weighting		assets
ARGENTINA
MercadoLibre		Information Technology		9,352		0.1		N/A		0.5
				9,352						0.5
BRAZIL
Banco Bradesco, ADR(b)(c)		Financials		20,525		0.1		N/A		1.1
BRF		Consumer Staples		13,203		0.1		0.3		0.7
Cetip		Financials		10,616		0.4		0.1		0.5
CIA Hering		Consumer Discretionary		30,216		4.4		N/A		1.6
Itaú Unibanco, ADR(c)		Financials		56,280		0.2		N/A		2.9
Lojas Americanas		Consumer Discretionary		13,289		0.7		0.0		0.7
M. Dias Branco		Consumer Staples		14,209		0.4		0.0		0.7
MAHLE Metal Leve		Consumer Discretionary		5,791		0.8		N/A		0.3
TOTVS		Information Technology		17,058		1.4		0.0		0.9
				181,187						9.4
CAMBODIA
NagaCorp		Consumer Discretionary		14,670		1.2		N/A		0.8
				14,670						0.8
CZECH REPUBLIC
Moneta Money Bank		Financials		4,621		0.4		N/A		0.2
				4,621						0.2
HONG KONG/CHINA
Alibaba, ADR(c)		Information Technology		29,140		0.0		2.9		1.5
Baidu, ADR(c)		Information Technology		13,076		0.3		1.2		0.7
Bloomage Biotechnology		Health Care		7,316		1.6		N/A		0.4
Brilliance China Automotive		Consumer Discretionary		109,423		2.5		0.1		5.6
China International Marine Containers		Industrials		7,173		0.5		N/A		0.4
China Petroleum and Chemical, H		Energy		25,122		0.2		0.5		1.3
COSCO Pacific		Industrials		6,317		0.3		0.0		0.3
Dairy Farm		Consumer Staples		33,013		0.4		N/A		1.7
Guangzhou Automobile Group		Consumer Discretionary		3,657		0.2		0.1		0.2
Inner Mongolia Yitai Coal, B		Energy		4,460		0.5		N/A		0.2
MGM China		Consumer Discretionary		9,856		0.2		N/A		0.5

^(a)   N/A: Security not included in the MSCI Emerging Markets Index.

^(b)   Preferred shares.

^(c)   US listed American Depositary Receipt.

				Fair Value		% of Issued		MSCI Index	(a)	% of net
Country		Sector		£'000		Share Class		Weighting		assets
HONG KONG/CHINA (continued)
NetEase, ADR(c)		Information Technology		26,054		0.0		0.5		1.4
Ping An Insurance Group		Financials		9,453		0.0		N/A		0.5
Sunny Optical Technology		Information Technology		7,379		0.2		N/A		0.4
Tencent		Information Technology		68,008		0.0		3.8		3.5
Uni-President China		Consumer Staples		15,391		0.7		N/A		0.8
Victory City International		Consumer Discretionary		3,553		3.4		N/A		0.2
Weifu High-Technology, B		Consumer Discretionary		2,975		1.0		N/A		0.2
				381,366						19.8
HUNGARY
Gedeon Richter		Health Care		21,319		0.7		0.1		1.1
				21,319						1.1
INDIA
Bajaj Holdings & Investments		Financials		4,289		0.2		N/A		0.2
Biocon		Health Care		1,976		0.1		N/A		0.1
Glenmark Pharmaceuticals		Health Care		7,394		0.2		0.0		0.4
ICICI Bank		Financials		34,686		0.2		0.1		1.8
Infosys Technologies		Information Technology		12,635		0.0		0.7		0.6
Oil & Natural Gas		Energy		24,880		0.1		0.1		1.3
Peninsula Land		Real Estate		444		0.7		N/A		-
Reliance Industries		Energy		16,030		0.0		0.5		0.8
Tata Chemicals		Materials		10,908		0.7		N/A		0.6
Tata Consultancy Services		Information Technology		8,917		0.0		0.4		0.5
Tata Motors		Consumer Discretionary		7,630		0.4		0.0		0.4
				129,789						6.7
INDONESIA
Astra International		Consumer Discretionary		61,042		0.3		0.3		3.1
Bank Danamon Indonesia		Financials		35,761		1.6		0.0		1.9
				96,803						5.0
KENYA
Equity Group		Financials		6,342		0.8		N/A		0.3
KCB Group		Financials		10,648		1.7		N/A		0.6
				16,990						0.9

^(a)     N/A: Security not included in the MSCI Emerging Markets Index.

^(c)     US listed American Depositary Receipt.

				Fair Value		% of Issued		MSCI Index	(a)	% of net
Country		Sector		£'000		Share Class		Weighting		assets
MEXICO
América Móvil, ADR(c)		Telecommunication Services		5,584		0.0		N/A		0.3
Industrias Peñoles		Materials		3,227		0.0		0.1		0.2
Nemak		Consumer Discretionary		5,837		0.2		N/A		0.3
Telesites		Telecommunication Services		274		0.0		N/A		-
				14,922						0.8
NIGERIA
Nigerian Breweries		Consumer Staples		558		0.0		N/A		-
				558						-
PAKISTAN
MCB Bank		Financials		44,028		2.4		N/A		2.3
United Bank		Financials		2,843		0.2		N/A		0.1
				46,871						2.4
PERU
Buenaventura, ADR(c)		Materials		71,832		2.4		0.1		3.7
				71,832						3.7
PHILIPPINES
BDO Unibank		Financials		5,045		0.1		0.1		0.3
				5,045						0.3
RUSSIA
Gazprom, ADR(c)		Energy		29,257		0.0		N/A		1.6
LUKOIL, ADR(c)(d)		Energy		23,732		0.1		N/A		1.2
Mail.Ru, GDR(e)		Information Technology		18,643		1.1		N/A		1.0
Norilsk Nickel, ADR(c)		Materials		24,557		1.0		N/A		1.2
TMK, GDR(e)		Energy		4,747		0.2		N/A		0.2
Yandex		Information Technology		18,515		0.4		N/A		1.0
				119,451						6.2
SAUDI ARABIA
SABIC, Participatory Note		Materials		21,424		0.0		N/A		1.1
Savola Group, Participatory Note		Consumer Staples		113		1.2		N/A		-
				21,537						1.1

^(a)     N/A: Security not included in the MSCI Emerging Markets Index.

^(c)     US listed American Depositary Receipt.

^(d)     Security listed on the London and Moscow Stock Exchanges.

^(e)     UK listed Global Depositary Receipt.

				Fair Value		% of Issued		MSCI Index	(a)	% of net
Country		Sector		£'000		Share Class		Weighting		assets
SOUTH AFRICA
Massmart		Consumer Staples		16,686		1.2		0.0		0.9
MTN Group		Telecommunication Services		3,248		0.0		0.3		0.2
Naspers, N		Consumer Discretionary		76,610		0.1		1.9		3.9
				96,544						5.0
SOUTH KOREA
Daelim Industrial		Industrials		22,531		1.1		0.1		1.2
Fila Korea		Consumer Discretionary		5,167		0.7		N/A		0.3
Hankook Tire		Consumer Discretionary		6,934		0.1		0.1		0.4
Hanon Systems		Consumer Discretionary		16,956		0.4		0.1		0.9
Hite Jinro		Consumer Staples		5,700		0.5		N/A		0.3
Hyundai Development		Industrials		41,091		1.5		0.1		2.1
Hyundai Wia		Consumer Discretionary		7,962		0.5		0.0		0.4
iMarketKorea		Industrials		4,856		1.5		N/A		0.3
Interpark		Consumer Discretionary		3,870		1.9		N/A		0.2
KT Skylife		Consumer Discretionary		6,296		1.2		N/A		0.3
POSCO		Materials		3,500		0.0		0.4		0.2
Samsung Electronics		Information Technology		112,041		0.1		3.6		5.7
SK Innovation		Energy		10,320		0.1		0.2		0.5
Youngone		Consumer Discretionary		7,491		0.7		N/A		0.4
				254,715						13.2
TAIWAN
Catcher Technology		Information Technology		14,621		0.3		0.1		0.7
Hon Hai Precision Industry		Information Technology		39,766		0.1		1.0		2.1
Largan Precision		Information Technology		20,403		0.2		0.3		1.1
Pegatron		Information Technology		14,568		0.3		0.1		0.7
Taiwan Semiconductor Manufacturing		Information Technology		86,415		0.1		3.5		4.5
				175,773						9.1
THAILAND
Kasikornbank		Financials		25,269		0.3		0.2		1.3
Kiatnakin Bank		Financials		20,009		2.0		N/A		1.1
Land and Houses		Real Estate		10,094		0.4		N/A		0.5
Land and Houses, Warrants		Real Estate		1,449		0.6		N/A		0.1
PTT Exploration and Production		Energy		8,412		0.1		N/A		0.5

^(a)     N/A: Security not included in the MSCI Emerging Markets Index.

				Fair Value		% of Issued		MSCI Index	(a)	% of net
Country		Sector		£'000		Share Class		Weighting		assets
THAILAND (continued)
Siam Commercial Bank		Financials		17,744		0.2		N/A		0.9
Thai Beverages		Consumer Staples		12,052		0.1		N/A		0.6
Univanich Palm Oil		Consumer Staples		6,417		5.0		N/A		0.3
				101,446						5.3
TURKEY
Akbank		Financials		8,848		0.1		0.1		0.5
				8,848						0.5
UNITED KINGDOM
Unilever(f)		Consumer Staples		84,381		0.2		N/A		4.4
				84,381						4.4
UNITED STATES
IMAX(f)		Consumer Discretionary		12,962		0.9		N/A		0.7
				12,962						0.7
TOTAL INVESTMENTS				1,870,982						97.1
OTHER NET ASSETS				55,785						2.9
TOTAL NET ASSETS				1,926,767						100.0

^(a)   N/A: Security not included in the MSCI Emerging Markets Index.

^(f)     These companies, listed on stock exchanges in developed markets, have significant earnings from emerging markets.

		Less than		£1.5bn to		Greater than		Other Net
Market Capitalisation Breakdown(g) (%)		£1.5bn		£5bn		£5bn		Assets
30 September 2016		10.7		27.5		58.9		2.9
31 March 2016		12.5		27.6		54.8		5.1

^(g)     Market Capitalisation - The total market value of a company's shares. For a vehicle like TEMIT, which invests in a number of companies, this is calculated by the share price on a certain date multiplied by the number of shares in issue.

Source: FactSetї

	30 September		31 March
Split Between Markets(h) (%)	2016		2016
Emerging Markets	88.2		84.9
Frontier Markets	3.8		5.0
Developed Markets(i)	5.1		5.0
Other Net Assets	2.9		5.1

^(h)     Geographic split between "Emerging Markets", "Frontier Markets" and "Developed Markets" are as per MSCI index classifications.

⁽ⁱ⁾      Developed markets exposure represented by companies listed in the United Kingdom and United States.

Source: FactSet

 

Geographic Asset Allocation

As at 30 September 2016

Country weightings vs benchmark (%)*

Country		TEMIT	MSCI Emerging Markets Index
Hong Kong/China		19.8%	27.0%
South Korea		13.2%	14.8%
Brazil		9.4%	7.4%
Taiwan		9.1%	12.1%
India		6.7%	8.5%
Russia		6.2%	3.7%
Thailand		5.3%	2.2%
Indonesia		5.0%	2.7%
South Africa		5.0%	7.1%
United Kingdom**		4.4%	0.0%
Peru		3.7%	0.4%
Pakistan**		2.4%	0.0%
Saudi Arabia**		1.1%	0.0%
Hungary		1.1%	0.3%
Kenya**		0.9%	0.0%
Cambodia**		0.8%	0.0%
Mexico		0.8%	3.7%
United States**		0.7%	0.0%
Turkey		0.5%	1.2%
Argentina**		0.5%	0.0%
Philippines		0.3%	1.3%
Czech Republic		0.2%	0.1%
Nigeria**		0.0%	0.0%

*    Other countries held by the benchmark are Chile, Colombia, Egypt, Greece, Malaysia, Poland, Qatar and United Arab Emirates.

**  Countries not held in the MSCI Emerging Markets Index.

												Total Return in sterling
														MSCI
														Emerging
		31 Mar 2016						Market		30 Sep 2016				Markets
		Market Value		Purchases		Sales		Movement		Market Value		TEMIT		Index
Country		£m		£m		£m		£m		£m		%		%
Hong Kong/China		309		51		(60	)	81		381		27.0		26.5
South Korea		199		40		(38	)	54		255		26.9		21.3
Brazil		170		10		(73	)	74		181		69.2		40.4
Taiwan		127		10		-		39		176		28.5		25.6
India		140		11		(48	)	27		130		26.2		21.6
Other		537		143		(85	)	153		748		-		-
Other Net Assets		80		-		-		(24	)	56		-		-
Total		1,562		265		(304	)	404		1,927

 

Sector Asset Allocation

As at 30 September 2016

Sector weightings vs benchmark (%)*

Sector	TEMIT	MSCI Emerging Markets Index
Information Technology	26.8%	23.9%
Consumer Discretionary	21.4%	10.6%
Financials	16.5%	23.7%
Consumer Staples	10.4%	7.9%
Energy	7.6%	7.3%
Materials	7.0%	6.4%
Industrials	4.3%	5.9%
Health Care	2.0%	2.6%
Real Estate	0.6%	2.7%
Telecommunication Services	0.5%	6.1%

*    Other sector held by the benchmark is Utilities.

														Total Return in sterling
																MSCI
																Emerging
		31 Mar 2016							Market			30 Sep 2016				Markets
		Market Value		Purchases		Sales			Movement			Market Value		TEMIT		Index
Sector		£m		£m		£m			£m			£m		%		%
Information Technology		409		56		(85	)		137			517		36.1		32.0
Consumer Discretionary		293		60		(20	)		79			412		23.7		19.7
Financials		294		42		(86	)		67			317		26.8		22.2
Consumer Staples		166		16		(23	)		43			202		27.0		16.9
Energy		133		21		(40	)		33			147		28.9		22.1
Materials		62		46		(26	)		53			135		64.6		21.3
Industrials		72		6		(3	)		7			82		9.3		12.3
Health Care		27		17		(13	)		7			38		22.6		13.6
Real Estate(a)		12		1		(3	)		2			12		20.0		-
Telecommunication Services		14		-		(5	)		-			9		-		13.3
Other Net Assets		80		-		-			(24	)		56		-		-
Total		1,562		265		(304	)		404			1,927

^(a)     A new sector classification was introduced to the industry on 1 September 2016. Land and Houses and Peninsula Land were previously included within Financials but have been reallocated to Real Estate due to this change.

Outlook

While the year is not yet over, we believe that the emerging markets' recovery is set to continue over the next few years. We see brighter prospects for investors in this area, and the long-term performance of emerging market equities continues to compare favourably to that of developed markets. The long term case for investing in emerging markets remains one based on rates of economic growth superior to those in the developed world, with rising personal wealth leading to greater spending power, improving infrastructure and, in some cases, world leading technology. As investment manager's we focus primarily on individual stocks and, as can be seen from the description of our management activities above, this does not lead us to favour any geographic region or sector but rather to focus on how current share prices compare with projected future growth.

While emerging markets remain sensitive to macroeconomic events and global monetary policy, equity markets appear to have begun to improve, and we believe that confidence is returning to investors.

Moreover, despite the recent increase in fund flows, investors remain considerably underweight in emerging markets, which we believe is supportive of further improvement in the share price ratings over the longer term.

Carlos Hardenberg

18 November 2016

Income Statement

For the six months to 30 September 2016

	For the six months to 30 September 2016 (unaudited)
	Revenue		Capital		Total
	£'000		£'000		£'000
Gains/(losses) on investments and foreign exchange
Gains/(losses) on investments at fair value	-		425,774		425,774
Gains/(losses) on foreign exchange	-		(1,275	)	(1,275	)
Revenue
Dividends	27,986		-		27,986
Bank and deposit interest	48		-		48
	28,034		424,499		452,533
Expenses
AIFM fee	(9,571	)	-		(9,571	)
Other expenses	(890	)	-		(890	)
	(10,461	)	-		(10,461	)
Profit/(loss) before taxation	17,573		424,499		442,072
Tax expense	(2,395	)	(1,129	)	(3,524	)
Profit/(loss) for the period	15,178		423,370		438,548
Profit/(loss) attributable to equity holders of the Company	15,178		423,370		438,548
Earnings per share	5.18	p	144.71	p	149.89	p
Ongoing charge ratio					1.21	%

Under the Company's Articles of Association the capital element of return is not distributable.

The total column is the Income Statement of the Company.

The supplementary revenue and capital return columns are both prepared under guidance published by the Association of Investment Companies.

All revenue and capital items in the above statement derive from continuing operations.

There is no other income for this period and therefore no separate statement of comprehensive income has been presented.

The Ongoing Charge Ratio (OCR) represents the annualised ongoing charges of the Company divided by the average daily net assets of the Company for the year.

The AIFM fee of 1.10% per annum is payable to Franklin Templeton as Manager.

Dividend Policy

In accordance with the Company's stated policy, no interim dividend is declared for the period.

An ordinary dividend of 8.25 pence per share for the year ended 31 March 2016 was paid on 22 July 2016 at a cost of £24,132,000.

 

For the six months to 30 September 2015 (unaudited)									Year ended 31 March 2016 (audited)
Revenue			Capital			Total			Revenue			Capital			Total
£'000			£'000			£'000			£'000			£'000			£'000
-			(581,571	)		(581,571	)		-			(388,315	)		(388,315	)
-			699			699			-			1,710			1,710
27,885			-			27,885			44,702			-			44,702
213			-			213			319			-			319
28,098			(580,872	)		(552,774	)		45,021			(386,605	)		(341,584	)
(9,512	)		-			(9,512	)		(17,535	)		-			(17,535	)
(1,007	)		-			(1,007	)		(1,910	)		-			(1,910	)
(10,519	)		-			(10,519	)		(19,445	)		-			(19,445	)
17,579			(580,872	)		(563,293	)		25,576			(386,605	)		(361,029	)
(2,257	)		949			(1,308	)		(3,772	)		1,661			(2,111	)
15,322			(579,923	)		(564,601	)		21,804			(384,944	)		(363,140	)
15,322			(579,923	)		(564,601	)		21,804			(384,944	)		(363,140	)
4.87	p		(184.26	)p		(179.39	)p		7.05	p		(124.47	)p		(117.42	)p
						1.21	%								1.22	%

Balance Sheet

As at 30 September 2016

		As at			As at			As at
		30 September			30 September			31 March
		2016			2015			2016
		£'000			£'000			£'000
		(unaudited)			(unaudited)			(audited)
Assets
Non-current assets
Investments at fair value through profit or loss		1,870,982			1,313,374			1,482,238
Current Assets
Trade and other receivables		12,298			4,566			6,884
Cash		61,248			89,000			77,359
		73,546			93,566			84,243
Current Liabilities
Trade and other payables		(16,409	)		(2,723	)		(3,890	)
Capital gains tax provision		(1,352	)		(1,109	)		(326	)
		(17,761	)		(3,832	)		(4,216	)
Net Assets		1,926,767			1,403,108			1,562,265
Issued Share Capital and Reserves Attributable to Equity Shareholders
Equity Share Capital		72,017			77,061			74,505
Capital Redemption Reserve		10,652			5,608			8,164
Special Distributable Reserve		433,546			433,546			433,546
Capital Reserve		1,318,417			792,294			944,961
Revenue Reserve		92,135			94,599			101,089
Equity Shareholders' Funds		1,926,767			1,403,108			1,562,265
Net Asset Value pence per share		668.9			455.2			524.2

Statement of Changes in Equity

For the six months to 30 September 2016 (unaudited)

					Capital		Special
		Equity Share			Redemption		Distributable		Capital			Revenue
		Capital			Reserve		Reserve		Reserve			Reserve			Total
		£'000			£'000		£'000		£'000			£'000			£'000
Balance at 31 March 2015		79,736			2,933		433,546		1,423,461			105,355			2,045,031
Profit/(loss) for the period		-			-		-		(579,923	)		15,322			(564,601	)
Equity dividends		-			-		-		-			(26,078	)		(26,078	)
Purchase and cancellation of own shares		(2,675	)		2,675		-		(51,244	)		-			(51,244	)
Balance at 30 September 2015		77,061			5,608		433,546		792,294			94,599			1,403,108
Profit/(loss) for the period		-			-		-		194,979			6,482			201,461
Equity dividends*		-			-		-		-			8			8
Purchase and cancellation of own shares		(2,556	)		2,556		-		(42,312	)		-			(42,312	)
Balance at 31 March 2016		74,505			8,164		433,546		944,961			101,089			1,562,265
Profit/(loss) for the period		-			-		-		423,370			15,178			438,548
Equity dividends		-			-		-		-			(24,132	)		(24,132	)
Purchase and cancellation of own shares		(2,488	)		2,488		-		(49,914	)		-			(49,914	)
Balance at 30 September 2016		72,017			10,652		433,546		1,318,417			92,135			1,926,767

*    Dividend returned to the Company for the shares bought back that were still outstanding on record date.

Cash Flow Statement

For the six months to 30 September 2016 (unaudited)

		For the six			For the six			For the
		months to			months to			year to
		30 September			30 September			31 March
		2016			2015			2016
		£'000			£'000			£'000
		(unaudited)			(unaudited)			(audited)
Cash flows from operating activities
Profit/(loss) before taxation		442,072			(563,293	)		(361,029	)
Adjustments for:
(Gains)/losses on investments at fair value		(425,774	)		581,571			388,315
Realised (gains)/losses on foreign exchange		1,275			(699	)		(1,710	)
Stock dividends received in period		(797	)		-			(749	)
Increase in debtors		655			1,496			236
Increase/(decrease) in creditors		134			(492	)		(327	)
Cash generated from operations		17,565			18,583			24,736
Tax paid		(2,498	)		(2,462	)		(4,047	)
Net cash inflow from operating activities		15,067			16,121			20,689
Cash flows from investing activities
Purchases of non-current financial assets		(274,995	)		(274,162	)		(708,533	)
Sales of non-current financial assets		317,995			312,091			772,668
Net cash inflow from investing activities		43,000			37,929			64,135
Cash flows from financing activities
Equity dividends paid		(24,132	)		(26,078	)		(26,070	)
Purchase and cancellation of own shares		(50,046	)		(50,984	)		(93,407	)
Net cash outflow from financing activities		(74,178	)		(77,062	)		(119,477	)
Net decrease in cash		(16,111	)		(23,012	)		(34,653	)
Cash at the start of the period		77,359			112,012			112,012
Cash at the end of the period		61,248			89,000			77,359

Copies will be uploaded and available for viewing on the National Storage Mechanism, copies will also be posted to the website www.temit.co.uk and may also be requested during normal business hours from Client Dealer Services at Franklin Templeton Investment Management Limited on freephone 0800 305 306. A pdf version of the full Half Yearly Report to 30^th September 2016 will be available by accessing the following hyperlink http://www.franklintempleton.co.uk/content-common/semi-annual-report/en_GB/local-GB/TEMIT-semi-annual-report.pdf

Stephen Westwood (Investor Relations) [phone] or Joe Winkley at Winterflood (Corporate Broker) on + 44 (0) 20 3100 0301.

 

END

 

 

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