Publication of monthly factsheet

Utilico Emerging Markets Trust PLC

14 June 2023

 

14 June 2023

UTILICO EMERGING MARKETS TRUST PLC

(LEI Number: 2138005TJMCWR2394O39)

Publication of monthly factsheet

The latest monthly factsheet for Utilico Emerging Markets Trust plc ("UEM" or the "Company") will shortly be available through the Company's website at:

https://www.uemtrust.co.uk/investor-relations/factsheet-archive

Monthly commentary

PERFORMANCE

UEM's NAV total return increased by 1.9% in May, ahead of the MSCI Emerging Markets total return Index which was down by 0.2% in Sterling terms.

Equity markets were mixed in May, with concerns over the debt ceiling and the prospect of default dominating US headlines, though this was ultimately averted by legislation just after month end. The Federal Bank approved its tenth consecutive interest rate increase, with the European Central Bank also rising in the month. The S&P 500 Index was up just 0.2% over the month, while in Europe the Eurostoxx fell 3.2%.

After a promising start to the year, the reopening in China looks to have stalled, with residential sales dropping below pre-pandemic levels and factory activity unexpectedly contracting with manufacturing PMI falling to a five-month low of 48.8.  Whilst the Western world continues to struggle with inflation, it is notable that China is flirting with deflation with CPI at just 0.2%. Hong Kong's Hang Seng Index fell 8.3% whilst the Shanghai Composite was down 3.6% in May.

Brazil continued to be a highlight, with the Bovespa Index up 3.7% over the month as local markets responded positively to the consumer inflation rate falling to just 3.9%, increasing the likelihood of interest rate cuts. With the Central Bank rate at a six-year high of 13.75%, Brazil has one of the highest real rates in the world and significant scope to cut rates. Brazil GDP growth of 4.0% in Q1 also surprised on the upside, boosted by record grain production. Elsewhere in Latam, the Mexico Bolsa declined by 4.3% while the Chilean IPSA Index firmed by 1.0%.

Inflation in India fell to an 18-month low with CPI at 4.7% for April, though the Reserve Bank of India indicated that rate cuts were unlikely in the near term. One concern is that food inflation will rise later this year as an El Nino weather event has now started, which usually results in hotter and drier weather in South Asia. The Indian Sensex and the Vietnam Ho Chi Minh Index were both up 2.5% in May.

In the currency markets, the US Dollar rallied, with the DXY Dollar Index strengthening by 2.6% and USD up 1.4% against Sterling over the month. EM currencies were mixed against Sterling, with the Brazilian Real and the Chinese Renminbi declining 0.9% and 1.1% respectively versus GBP. In contrast, the Vietnamese Dong was up 1.3% and the Indian Rupee firmed by 0.3% against Sterling.

PORTFOLIO

The majority of investments in UEM's portfolio posted share price increases during May. There were two changes to the top thirty holdings, with Omega Energia and Grupo Traxion replacing GAP and BVC due to disinvestment and relative performance respectively. Omega, a renewables operator in Brazil, was one of UEM's top holdings a few years ago in its previous guise Omega Geracao, a position we exited in 2019-20 on valuation grounds. This proved prescient as the shares have significantly de-rated over the past three years and offered an attractive re-entry level which we effected in Q1.

UEM's Chinese investments performed poorly in May, with Kunlun Energy falling 14.1%, Shanghai Airport down 13.4%, and China Gas declining by 11.7%. Much of this relates to indiscriminate selling pressure in local markets, with gas companies caught up in concerns over the real estate slowdown and airports on consumption outlook, though the latter seemingly ignores the fact that domestic passenger figures have now rebounded to over 20% higher than pre-Covid levels.

All of UEM's top thirty in Brazil outperformed the local index, helped by their classification as long-duration plays geared into a declining interest rate environment. Santos Brasil's share price soared 17.8% on the back of speculation that MSC may be interested in acquiring Santos, while Eletrobras was up 8.2%, Omega up 7.2% and Alupar up 6.9%. In Chile, Aguas Andinas appreciated by 9.4% and ECL rose 12.5% on the back of advancing financials and improved hydrology prospects as El Nino typically boosts rainfall in the country. In Mexico, OMA fell 7.1% following President Lopez Obrador's decision to expropriate a rail line, elevating concerns that airport concessions may also be at risk.

Elsewhere in Asia, notable performances were seen with KINX's share price up 9.4% and FPT up 8.4%, while ICT fell 10.1% reflecting concern over a slowdown of global trade. India share price movements were comparatively subdued, with GSPL up 5.4% and Indigrid down 2.5%. During May, purchases for the portfolio totalled £2.1m and realisations totalled £14.6m.

DEBT

UEM's bank debt decreased from £36.4m to £33.9m and was drawn as USD 20.0m, EUR 12.0m and GBP 7.5m.

OTHER

UEM's share price ended May at 219.00p, down 0.5%. The discount to NAV disappointingly widened to 15.2% from 13.1%. UEM bought back 532,900 shares at an average price of 225.28p in the month.

On 22 May 2023, UEM declared a fourth quarterly interim dividend of 2.15p per ordinary share in respect of the year ended 31 March 2023, which will be paid on 23 June 2023 to shareholders on the register on 2 June 2023.

Name of contact and telephone number for enquiries:

ICM Investment Management Limited                                 [phone]

Charles Jillings / Alastair Moreton

Montfort Communications

Gay Collins, Pippa Bailey                                                       [phone]

[e-mail]

 

END