REG-Fidelity Emerging Markets Ltd: Half-year Report
11/03/2024 13:45
Half Year Report for the six months ended 31 December 2023
* Fidelity Emerging Markets Limited reported a Net Asset Value (NAV) return of
+3.2% and a Share Price Total Return of +7.5% in the six months ended 31
December 2023
* The Company’s benchmark index, the MSCI Emerging Markets Index, rose +4.4%
over the same timeframe
* During the period, the Company’s short book added over 100bps to relative
returns
* The portfolio managers remain focused on looking for well capitalised
businesses with under-levered balance sheets in the long book and making use
of the Company’s flexible investment capabilities
Financial Highlights
31 December 2023 30 June 2023
Assets
USD
Gross Asset Exposure 1 $1,220.2m $1,185.0m
Equity Shareholders’ Funds $800.9m $796.7m
NAV per Participating Preference Share 2 $8.85 $8.75
Gross Gearing 2,3 52.3% 48.7%
Net Gearing 2,4 (1.7)% (3.9)%
GBP
Gross Asset Exposure 1,5 £957.2m £932.1m
Equity Shareholders’ Funds 5 £628.3m £626.7m
NAV per Participating Preference Share 2,5 £6.94 £6.88
Participating Preference Share Price and Discount Data
Participating Preference Share Price at the period end £6.16 £5.88
Discount to NAV per Participating Preference Share at period end 2 11.29% 14.61%
Number of Participating Preference Shares in issue 90,462,891 91,100,066
Earning for the six months ended 31 December 2023 2022
Revenue Earnings per Participating Preference Share 6 $0.06 $0.09
Capital Earnings/(Loss) per Participating Preference Share 6 $0.23 ($0.45)
Total Earnings/(Loss) per Participating Preference Share 6 $0.29 ($0.36)
Ongoing charges ratio 2 0.82% 0.84%
1 The value of the portfolio exposed to market price movements.
2 Alternative Performance Measures. See Glossary of Terms in the Half Year
Report for the six months ended 31 December 2023 .
3 Gross Asset Exposure less Equity Shareholders’ Funds expressed as a
percentage of Equity Shareholders’ Funds.
4 Net Market Exposure less Equity Shareholders’ Funds expressed as a
percentage of Equity Shareholders’ Funds.
5 The conversion from USD to GBP is based on exchange rates prevailing at the
reporting dates.
6 Calculated based on weighted average number of participating preference
shares in issue during the period.
Contacts
For further information please contact:
Nira Mistry
Company Secretary
07778 354 517
FIL Investments International
Chairman’s Statement
Heather Manners, Chairman
I am pleased to present your Company’s half-year report, covering a period
in which portfolio performance has been encouraging with the share price total
return increasing by 7.5% in spite of continued geopolitical volatility.
Overview
In the six months under review, China – the largest emerging market, yet an
underweight in the Company’s portfolio compared with the benchmark –
continued to struggle amid a slower-than-expected post-Covid reopening and an
ongoing debt crisis in the property market. Conversely, less prominent areas
such as South East Asia and Latin America have been reaping the benefits of
the trend towards developed market companies relocating manufacturing capacity
away from China, while an uptick in the semiconductor cycle has been positive
for leading chipmakers in Taiwan. The Company’s retained holdings in Russian
entities have been written down to $Nil in the balance sheet. For further
information please refer to the Portfolio Manager’s review and to Note 10 of
the financial statements in the Half Year Report for the six months ended
31 December 2023.
Against this backdrop, net asset value (‘NAV’) total return performance
for the six months ended 31 December 2023 was positive, at 3.2%. While this
was slightly behind the 4.4% sterling return of the Company’s benchmark, the
MSCI Emerging Markets Total Return Index (‘the Index’), the share price
total return per Participating Preference Share notably outperformed the
Index, rising by 7.5%. This is particularly pleasing not just because it
suggests an improvement in sentiment towards emerging markets as an asset
class, but also as it underlines the hard work of your Board and Fidelity’s
efforts to promote the Company’s enhanced investment proposition and narrow
the share price discount to NAV.
Fundamental to this is Fidelity’s unique investment process. The managers’
ability to hold short as well as long positions – investing in well
financed, well managed businesses that can drive growth, while also making
money from identifying those at risk of disruption – is a key
differentiating factor that is increasingly feeding into positive performance
for the Company. While we are yet to reach a three-year track record under the
management of Fidelity’s Nick Price and Chris Tennant (appointed in
September 2021), performance for the 12 months ended 31 December 2023 was
ahead of the benchmark on both a share price and a NAV total return basis. As
well as having a full investment toolkit, your Company also benefits from
Fidelity’s large and experienced team of portfolio managers and analysts,
the majority of whom are based in the markets they cover, giving them an
invaluable advantage in terms of identifying new investment opportunities.
At Board level, your Directors and I have continued to focus on building
awareness of the strength of Fidelity’s approach, as well as keeping costs
in check (our ongoing charges ratio is the lowest in the AIC Global Emerging
Markets sector, at 0.82%) and taking deliberate action to limit the discount
to NAV. During the period under consideration, the discount narrowed from
14.6% to 11.3%. While a 3.3% narrowing is not inconsiderable, the discount
remains wider than we would like. We have the authority to repurchase up to
14.99% of the issued share capital each year in order to manage the discount,
and in November 2023 we launched a buyback programme under which 637,175
shares (c. 0.7% of the total) were bought back into treasury between
13 November and 31 December. Since then, a further 458,056 shares have been
repurchased, bringing the total bought back to date under the current
programme to 1,095,231 (c. 1.2%). In addition, we have announced our intention
to implement a tender offer for up to 15% of the issued share capital,
expected to be at a 2% discount to the prevailing NAV. We expect the tender
offer to conclude in the first quarter of 2024.
2023 AGM and final dividend
The Company held its Annual General Meeting (‘AGM’) on 7 December 2023,
and I appreciate the shareholders’ support and thank you for your approval
of all resolutions presented at the meeting. A final dividend of $0.19
(15.27p) per Participating Preference Share (2022: $0.16) was approved by
shareholders and paid on 15 December 2023.
Shareholders should note that the Board will review the final dividend payment
later in the year based on dividend receipts from the companies held in the
portfolio.
Board changes
Following the December 2023 AGM, Julian Healy, Chairman of the Audit
Committee, announced his intention to step down from the Board for personal
reasons. We wish him well and thank him for his significant contribution to
the Company. On 17 January we announced the appointment to the Board of Mark
Little, who replaces Julian both as a Director and as Chairman of the Audit
and Risk Committee with immediate effect. Mark is a Chartered Accountant with
extensive financial services experience in fund management, research and
private banking, and has a strong understanding of compliance and regulation
in the modern financial services world, as well as a successful track record
as an investment company director. He will stand for election at the next AGM
in December 2024.
Outlook
Although developed markets (particularly the US, driven by the ‘magnificent
seven’ major technology stocks) once again performed better than emerging
markets in 2023, we continue to believe there are compelling reasons to
consider a long-term allocation to emerging markets. In contrast with many
Western economies, emerging nations largely did not undertake massive fiscal
support programmes during the Covid pandemic, and as such they have not been
subject to the same inflationary pressures as restrictions have eased. Away
from China, and as noted above, the trend towards deglobalisation and the
relocation of manufacturing capacity is boosting markets from India to Vietnam
to Mexico. All of these factors are positive for potential investment returns
from emerging markets, with the added bonus that (with the notable exception
of some areas of the Indian stock market) valuations generally look very
favourable compared with developed markets. Furthermore, the global push
towards a lower-carbon future provides a tailwind for commodity prices, which
should benefit developing nations across the EMEA and Latin America regions
which are rich in natural resources.
With an improving trend of performance, solid action to manage the discount,
continued efforts to raise your Company’s profile and decent prospects for
investment returns in an arena that boasts significant hidden value, your
Board and I are hopeful that the remainder of the financial year will build
further on the progress the Company has achieved over the last year.
Heather Manners
Chairman
11 March 2024
Investment Manager’s Half Year Review
Macroeconomic Review
Emerging markets rose over the second half of 2023, closing out the first
calendar year of positive performance for the index since 2020. Sentiment
oscillated over the period as emerging markets continued to grapple with
tighter monetary policy and continued weakness in China. Markets declined from
the end of the summer, with October another weak month as rising government
bond yields dented risk appetite. The market then rebounded significantly in
November as the dollar pulled back and bond yields came down, and it appeared
that the Fed was reaching the end of its rate tightening cycle, with this
rally continuing into December.
Performance across regions was mixed. Latin America rallied significantly as
interest rates came down, most notably in Brazil. Emerging Asia was weaker,
largely due to the underwhelming recovery in China, although this was somewhat
offset by strength in India as the country benefited from higher spending in
advance of an election year and improving consumer confidence. Several
emerging European markets also rallied following a market-friendly election
result in Poland and interest-rate cuts both there and in Hungary.
We also saw dispersion between sectors. Technology stocks continued to perform
well, enjoying the tailwind from the improved outlook for AI-related demand,
while energy stocks also rallied in a relatively high oil price environment.
Returns across other sectors were more varied, with the communication services
and real estate sectors impacted by weakness in China. The US dollar was
broadly flat, rallying through the late summer, and then falling back as the
outlook for interest-rate rises moderated.
Portfolio performance for the six months to 31 December 2023
Over the six-month period ending 31 December 2023, the net asset value
(“NAV”) total return of Fidelity Emerging Markets Limited was 3.2% (net of
fees, in GBP terms), while the share price rose by 7.5%. This was relative to
a 4.4% increase for the benchmark index (all figures are stated on a total
return basis, in GBP terms).
The portfolio’s small underperformance relative to the index over the last
six months of the year followed a strong first half of the year, which meant
the portfolio outperformed the index over the calendar year in aggregate.
While the long book detracted overall, the short book performed well, and
added over 100bps to relative returns over the six-month period.
Weakness in the second half of the year was largely due to the continued
derating of the high-quality Chinese consumer names we hold. This was despite
our underweight exposure to China (which we view as China and Hong Kong
combined). Although this underweight positioning helped, our positioning in
the country detracted overall as many of the Hong Kong listed names that we
hold sold off much more than the broader market as foreign investors looked to
exit the region.
There was marked dispersion among consumer companies, however, and some of the
strong performers over the period included consumer discretionary names
outside of China, for example in India and Poland. Consumer names accounted
for half of both the top ten contributors and detractors, emphasising just how
much variation there was within the sector. The portfolio’s underweight
exposure to the communication services sector also helped us as the industry
came under pressure from new regulations on Chinese gaming companies. There
was also a contribution from Russia as we took steps to reduce exposure when
liquidity was offered up (see later).
Top five contributors and detractors, six months ending 31 December 2023
Order Security Sector Relative (%) Actual CRR (bps)
Top 5
1 MakeMyTrip Limited Consumer Discretionary 1.56 73
2 Short position Information Technology -0.36 66
3 Tencent Holdings Ltd Communication Services -3.97 65
4 Kaspi.KZ JSC Financials 4.84 64
5 Short position Consumer Discretionary -0.33 62
Bottom 5
1 Li Ning Co Ltd Consumer Discretionary 1.64 -138
2 China Mengniu Dairy Co Consumer Staples 2.89 -126
3 First Quantum Minerals Ltd Materials 1.40 -90
4 AIA Group Ltd Financials 3.36 -80
5 PDD Holdings Inc Consumer Discretionary -0.89 -61
Source: Fidelity International, 31 December 2023.
High-quality Chinese consumer stocks derate
A persistent feature of the last six months has been continued weakness in
Chinese consumption as the economic reopening remains lacklustre and the
property market continues to come under pressure, which has significant
implications for consumer confidence. The portfolio’s weakest performers
over the period were largely China positions, with sportswear company Li Ning
and dairy company China Mengniu among the most significant detractors. There
is no doubt that the consumer environment has been weaker than expected
against the soft economic backdrop. However, it is important to say that these
moves can primarily be attributed to multiple compression, as opposed to
disappointing results. Many of these names are also blue-chip H-shares with
high foreign ownership that have suffered from international shareholders
exiting the region.
Stock specific weakness in the materials sector
One of the weaker performers over the period was the Canada listed copper
miner First Quantum Minerals, which sold off after the closure of its Cobre
mine in Panama, due to a contested government contract. Although we believe
that the expropriation of the mine without full compensation is unlikely, we
are closely monitoring the situation and have trimmed the portfolio’s
exposure to the company.
Dispersion among financials holdings
The performance of the portfolio’s financials positions was mixed. The
weakest performer was Hong Kong listed insurer AIA Group, which sold off as
investors looked to reduce exposure to China, and in particular high-quality H
shares. We are of the view that this is largely sentiment driven, as AIA has
had a strong year, with upgrades to premiums earned and a rising value of new
business. India’s largest private sector bank, HDFC Bank, also declined due
to some short-term concerns about its recent merger, although it performed
better towards the tail-end of the year following a strong showing for the
incumbent party at the local elections in India.
More positive was the performance of Kazakhstan’s ecommerce and payments
platform Kaspi, which has continued to deliver very strong earnings growth,
and has kept paying out dividends and buying back shares. Russia’s TCS
Group, a provider of online retail financial services, also contributed after
we partially exited the position in Q4.
A positive six months for the short book
It was a strong period for the short book. This was in part due to the market
backdrop during the first part of the period, with several highly shorted
stocks unwinding after an unprecedented squeeze in June and July. However,
strong stock picking was also in evidence, with short positions accounting for
two of the portfolio’s top five contributors to performance, a notable
achievement given that short positions are capped at 100bps.
The best performer was a US-listed Indian technology company that carried out
an unsuccessful equity raise and later filed for bankruptcy. A short position
in a Latin America-based retailer also performed well after it carried out a
failed rights issue and continued to lose market share. The rallying market at
the end of Q4 created a less favourable environment for shorting and meant
that two short positions in Asian technology businesses detracted as they rose
with the broader market.
Consumer discretionary names outside China rally
As inflation moderates and rates come down, the backdrop for the consumer has
improved in many emerging economies. Several consumer holdings outside of
China performed well over the period, with Indian online travel agency
MakeMyTrip a particularly strong performer, after it posted strong results and
benefited from a recovery in international travel. We think that the travel
industry in India has huge scope for growth, and that MakeMyTrip, as the
dominant operator in the market, should be a direct beneficiary of this.
Polish auto components distributor Auto Partner also did well after
demonstrating continually strong monthly sales data pointing to market share
gains. Russia’s Detsky Mir, a children’s retailer, also contributed after
we exited the position in the latter half of the year (see later).
Portfolio positioning as of 31 December 2023
In the long book we continue to look for well capitalised businesses with
under-levered balance sheets. We are conservatively positioned, meaning that
the companies we own should be better prepared for what could remain a
challenging environment. Although the long book remains quality focused, a
deliberate, continued search for value (without compromising on quality) has
remained central to our thinking.
Looking to the portfolio’s extended toolkit, the ability to venture further
down the market cap spectrum remains vital, allowing us to gain exposure to
companies benefiting from excellent structural growth drivers, including those
in smaller, frontier markets such as Kazakhstan and Vietnam.
When identifying ideas for the short book, we continue to make use of our
excellent research team to identify companies with characteristics such as
poor corporate governance, weak balance sheets, or deteriorating competitive
positions.
Regional positioning
Positioning changes in China have continued to centre around stocks that have
clear programs of cash returning to shareholders, generally via share
buybacks. This demonstrates a clear alignment of interest with shareholders,
and it means we have a buyer of equity in the market in the absence of buyers
of Chinese equity.
The derating in Chinese stocks has largely been driven by multiple compression
rather than earnings downgrades and has been much more extreme in H shares
given their high foreign ownership. We do see significant value in the China
market, and a growing prevalence of companies that are returning capital to
shareholders. China Mengniu Dairy, Zhongsheng Group, Vipshop and AIA Group are
just some examples of companies with progressive buyback policies that are
trading on very attractive valuations given weak sentiment towards the Chinese
market.
We do, however, remain conscious of the more muted backdrop for the consumer.
It is likely that China’s property market will not be the strong driver of
economic growth that it has been in the past, which has a knock-on effect on
consumer confidence. With an eye on managing risk and country level exposures,
we have looked to reduce our aggregate position in the country (which we view
as China and Hong Kong combined). As part of this we have a basket of short
positions in indebted, privately owned Chinese real estate developers, which
is paired against a position in a leading state-owned developer that stands to
gain as its private peers exit the market.
We see a multitude of opportunities beyond China, too. India is a strong
long-term structural growth story and there are also several near-term
tailwinds. Following an extended period of underinvestment, the country will
benefit from the current capex cycle, and could also see an uptick in activity
as some international companies move their manufacturing operations from China
to India. Exposure to the Indian market is predominantly via financials, given
that these trade on more attractive valuations than the broader market, but
there are also positions in companies across IT services, online travel,
motorcycles, and private security.
While the portfolio has an underweight exposure to South Korea and Taiwan, we
retain our core positions in semiconductor and memory names, where there has
been disciplined profit taking following the significant market rally last
year. Despite this bout of strong performance, these names trade on very cheap
multiples relative to their developed market peers.
We increased exposure to Latin America over the period. We have a positive
view on Mexico, which has a positive macroeconomic backdrop and is set to
benefit from the nascent trend of nearshoring as the US looks to shift its
supply chains closer to its own borders. The macro environment in Brazil is
also very strong, with a trade balance that is close to the highest level in
two decades. With inflation under control and interest rates coming down, we
expect a positive tailwind for consumers and corporates over the next year.
The Latin America exposure is broad-based and spans banks, retailers,
airlines, transportation businesses, and miners, among others.
Sector positioning
Financials remains the largest sector overweight for the portfolio. A
significant portion of this exposure is not interest-rate sensitive, and we
have looked to add exposure to banks that are beneficiaries of falling rates
– including those that should benefit from improving loan growth or
investment banking activity as interest rates come down. Here, our ability to
look for ideas across a broad investable universe and examine underexplored
areas of the market is important, with names such as Kazakhstan’s ecommerce
and payments platform Kaspi and Brazilian challenger bank Nu Holdings being
two examples of stocks that were unearthed through our intense, bottom-up
research process.
The portfolio also has an overweight exposure to consumer companies, which is
well diversified across markets. Although the consumer recovery in China has
certainly been weaker than expected, we are seeing green shoots across other
markets as inflation moderates and interest rates come down. The Chinese
consumer names we hold include internet platforms, and those operating in the
luggage and sportswear markets, and are all companies that are returning
capital to shareholders. Beyond China, our exposure includes Latin American
retailers, Indian travel and motorcycle businesses, and discount food
retailers in emerging Europe and South Africa. There are also several short
positions in companies across markets that are exposed to competitive threats
or have broken balance sheets, including retailers and electric vehicle
makers.
OutlookInterest rates are coming down across emerging markets…
Although emerging markets continued to underperform developed markets over
2023, with weakness in China explaining part of this, the discount at which
emerging markets are trading relative to both history and developed markets
remains at odds with the improving fundamental picture – particularly given
the improving backdrop for inflation and interest rates. Emerging market
central banks have been some of the most proactive in the world, with Brazil
the poster child of this trend, as both inflation and interest rates in the
country come down. We see a similar picture in other emerging economies, with
Chile, Poland and Hungary having all cut rates, and other countries set to
follow.
…Although rates will likely remain higher over the long term
Falling interest rates should provide a measure of support for longer-duration
growth assets over 2024. However, rates will likely remain more elevated than
they have been over the past 15 years – which continues to underpin our view
that some form of value exposure has a continued role to play in actively
managed portfolios. In an environment where structurally higher inflation
continues to challenge the outlook for growth, evidence of companies returning
cash to shareholders also remains vital. One key aspect of the portfolio’s
enhanced toolkit is the ability to short companies, and in a higher
interest-rate environment this has the potential to offer a particularly good
source of alpha, as the unsustainable debt levels of many companies come into
focus, and they pay the price of carrying too much leverage.
Weakness in China, but signs of shareholder-friendly activity
As the largest single constituent of the emerging market universe, China plays
a significant role in determining the outlook for the asset class in 2024.
There remains marked weakness in the Chinese property market, which has
implications for both consumer confidence and commodity demand. In an
environment where growth is likely to be weaker than it has been historically,
and where demographics are worsening as the population ages, evidence that
companies are returning capital to shareholders is critical. Valuations are
attractive and the extent of the derating, especially in H shares, means there
is potential for a rebound, although what the catalyst will be and exactly
when it will emerge is unclear.
A diverse opportunity set, with dispersion apparent
Elsewhere, we see pockets of the market overlooked, while dispersion is very
broad, as valuations differ significantly across regions. This throws up some
interesting opportunities and offers the potential to unlock attractive
shareholder returns in the year ahead. 2024 will be a busy election year for
emerging markets, with polls due in India, South Africa, Mexico, and Taiwan,
among many other countries. These are the types of events we continue to
scrutinise closely, drawing on external strategists to help us make sense of
the elevated unpredictability we see in markets.
While valuations have derated significantly, as the rally throughout November
and December showed, bouts of stronger performance can result in rapid
re-rating, underlining the importance of active management and disciplined
position size management. Given the derating in Chinese H shares, the extent
of any market move in this area could be significant, for example.
The emerging market universe still presents compelling opportunities and the
relative attractiveness of emerging market valuations compared to developed
markets, particularly the US market, is clear. However, discipline is
critical, as not all markets and not all sectors and regions are (or will
remain) cheap, making an active approach vital.
Strong fundamentals and attractive valuations
The macroeconomic backdrop is uncertain, and it remains to be seen whether the
US will achieve a soft landing or when consumer confidence in China will start
to recover – two factors that will have a significant influence on the
outlook for emerging markets in 2024. Nonetheless, falling interest rates will
act as a tailwind for companies and consumers, and should also create a shift
in mindset as investors retreat from safe-haven assets and start to consider
opportunity costs, looking at the value on offer in markets, including in risk
assets such as emerging market equities.
A go-anywhere approach to emerging markets
The extent of the derating within emerging markets over the last few years
means that there are many high-quality names trading at very attractive
valuations. In the portfolio’s long book, we continue to look for companies
that should be better prepared for what could remain a challenging
environment. We are also focused on putting to work the portfolio’s extended
toolkit, scouring the entire breadth of the market cap spectrum for ideas, and
making use of our excellent team of global research analysts to identify
candidates for the short book – taking a truly ‘go anywhere’ approach to
ensure we maximise our ability to profit from businesses of all kinds.
Nick Price
Chris Tennant
Portfolio Managers
11 March 2024
In 2023 we transacted in the shares of two Russian companies, TCS Group
Holdings and Detsky Mir. The contribution from these stocks reflects the
realisation of value. In November 2022 Detsky Mir announced that it intended
to convert its business into a private company. Subsequently we were informed
we were entitled to sell their Detsky Mir shares under a voluntary tender
offer. Fidelity elected to participate in the tender offer. The funds were
then automatically converted by the custodian and repatriated into the
portfolio. In December 2023 we partially sold shares in a Russian company, TCS
Group Holdings. These decisions were made with the view to protecting the
interests of our shareholders, and after close consultation with internal
Fidelity teams, we concluded that it would be in the best interest of
shareholders to transact.
Spotlight on the Top 5 Holdings
as at 31 December 2023
The top five holdings comprise 28.7% of the Company’s Net Assets.
Taiwan Semiconductor Manufacturing
Industry: Information Technology
Country: Taiwan
% of Net Assets 10.4%
TSMC is a Taiwanese semiconductor foundry with leading-edge technology, which
reinforces the company’s competitive position and ability to generate
incremental return on invested capital. The company has built a technological
moat over the past three decades and occupies an especially dominant position
at the forefront of the industry as competitors have dropped from the race due
to technical hurdles and the barrier of high required capital expenditures.
TSMC’s ability to hire the best talent while continuously improving its
know-how keeps it ahead of the competition and able to generate cashflow to
feed back into investing in R&D and capacity.
HDFC Bank
Industry: Financials
Country: India
% of Net Assets 5.1%
HDFC Bank is India’s largest private bank with a vast banking network
spanning over 7,800 branches and almost 20,000 ATMs, allowing the business to
serve a broad customer base in rural and urban India. The bank has invested
heavily in technology and operates in a highly automated environment, while
management has consistently delivered growth without compromising on asset
quality. HDFC has an immense future growth opportunity due to the increase in
retail credit penetration, branch expansion, market share gains and better
cross selling to existing customers.
Samsung Electronics
Industry: Information Technology
Country: South Korea
% of Net Assets 4.8%
Samsung Electronics is a technology powerhouse with products spanning upstream
manufacturing to downstream consumer products. The company’s device
experience division produces product such as mobile handsets, tablets,
business networks and medical and health equipment, while its device solutions
segment captures its memory and foundry business. Innovations in artificial
intelligence, 5G and 6G, automotive electronics and a wide range of robotics
are also core to Samsung’s strategy.
Kaspi.KZ
Industry: Financials
Country: Kazakhstan
% of Net Assets 4.7%
Kaspi is the dominant consumer finance, e-commerce, and payments platform in
Kazakhstan. It provides interconnected technology and products and services
that help people to pay, shop, and manage their finances. Its ecosystem
connects consumers and merchants, enabling digital payments, e-commerce, and
financial services. The company’s gateway to its ecosystem is the mobile
app, which is powered by the company’s proprietary technology and enables
users to navigate between interconnected products and services.
Axis Bank
Industry: Financials
Country: India
% of Net Assets 3.7%
Axis Bank is the third largest private sector bank in India. It caters to
large companies, small and medium size enterprises, the agricultural sector,
and a retail customer base. It has a significant footprint of 5,000 domestic
branches spread across the country. The company’s return on assets has
improved over time and has moved closer to competitors such as HDFC Bank,
despite the fact that is still trades at a discount to its peers. Like the
other private sector Indian bans, Axis Bank has a very large future growth
opportunity as retail credit penetration increases, with branch expansion and
market share gains expected to underpin growth in the years ahead.
Twenty Largest Investments
as at 31 December 2023
The Asset Exposures shown below measure the exposure of the Company’s
portfolio to market price movements in the shares and equity linked notes
owned or in the shares underlying the derivative instruments. The Fair Value
is the value the portfolio could be sold for and is the value shown on the
Statement of Financial Position. Where a contract for difference (“CFD”)
is held, the fair value reflects the profit or loss on the contract since it
was opened and is based on how much the price of the underlying shares has
moved (in effect, the unrealised gain or loss on the exposed positions).
Where the Company only holds shares, the Fair Value and Asset Exposure will
be the same.
Asset Exposure Fair value
$’000 % 1 $’000
Taiwan Semiconductor Manufacturing 83,264 10.4 67,435
(shares and long CFD)
Information Technology
HDFC Bank 40,982 5.1 40,982
Financials
Samsung Electronics (shares and long CFD) 38,366 4.8 9,842
Information Technology
Kaspi.KZ 37,909 4.7 37,909
Financials
Axis Bank (shares and long CFD) 29,511 3.7 5,776
Financials
NU Holdings (long CFD) 28,133 3.4 (408)
Financials
ICICI Bank (shares and long CFD) 27,055 3.4 6,233
Financials
AIA Group (shares, option and long CFD) 26,971 3.4 5,515
Financials
Bank Central Asia 25,393 3.2 25,393
Financials
Naspers 25,332 3.2 25,332
Consumer Discretionary
Grupo Mexico (long CFD) 24,357 3.1 1,718
Materials
Samsonite International (shares and long CFD) 20,725 2.6 10,566
Consumer Discretionary
MakeMyTrip (long CFD) 20,616 2.6 18
Consumer Discretionary
China Mengniu Dairy (shares and long CFD) 20,305 2.5 1,723
Consumer Staples
AlKhorayef Water & Power Technologies 19,748 2.5 19,748
Utilities
SK Hynix (long CFD) 16,289 2.0 1,550
Information Technology
Grupo Aeroportuario del Pacifico 15,400 1.9 15,400
Industrials
National Bank of Greece 15,359 1.9 15,359
Financials
Banco BTG Pactual 15,151 1.9 15,151
Financials
Auto Partner 14,419 1.8 14,419
Consumer Discretionary
Twenty largest long exposures 545,285 68.1 319,661
Other long exposures 580,245 72.4 452,982
Total long exposures before long futures and hedges 1,125,530 140.5 772,643
Add: long future contracts
Hang Seng China Enterprises Index 24,049 3.0 429
Total long futures contracts 24,049 3.0 429
Less: hedging exposures
MSCI Emerging Markets Index (future contract) (145,390) (18.2) (6,414)
Total hedging exposures (145,390) (18.2) (6,414)
Total long exposures after the netting of hedges 1,004,189 125.3 766,658
Short exposures
Short CFDs 203,570 25.4 (5,776)
Short futures 9,605 1.2 (377)
Short options 2,810 0.4 (173)
Total short exposures 215,985 27.0 (6,326)
Gross Asset Exposure 2 1,220,174 152.3
Portfolio Fair Value 3 760,332
Net current assets (excluding derivative assets and liabilities) 40,568
Total Shareholders’ Funds/Net Assets 800,900
1 Asset Exposure (as defined in the Glossary of Terms in the Half Year Report
for the six months ended 31 December 2023) expressed as a percentage of Net
Assets.
2 Gross Asset Exposure comprises market exposure to investments of
$768,579,000 plus market exposure to derivative instruments of $451,595,000.
3 Portfolio Fair Value comprises investments of $768,579,000 plus derivative
assets of $12,766,000 less derivative liabilities of $21,013,000 (per the
Statement of Financial Position ).
Interim Management Report
Principal and Emerging Risks and Uncertainties, Risk Management
In accordance with the AIC Code, the Board has in place a robust process for
identifying, evaluating and managing the principal risks and uncertainties
faced by the Company, including those that could threaten its business model,
future performance, solvency or liquidity. The Board, with the assistance of
the Alternative Investment Fund Manager, has developed a list of risks which,
as part of the risk management and internal controls process, identifies the
key existing and emerging risks and uncertainties faced by the Company. The
list of risks includes: volatility of emerging markets and market risk;
investment performance risk; changing investor sentiment; cybercrime and
information security risk; discount to net asset value (NAV) risk; lack of
market liquidity risk; business continuity and event management risk; gearing
risk; foreign currency exposure risk; environmental, social and governance
(ESG) risk and key person risk. Full details of these risks and how they are
managed are set out in the Company’s Annual Report for the year ended
30 June 2023 which is available on the Company’s website at
www.fidelity.co.uk/emergingmarkets. The Audit and Risk Committee continues to
identify new emerging risks and take any necessary action to mitigate their
potential impact. The risks identified are placed on the Company’s risk
matrix and graded appropriately. This process, together with the policies and
procedures for the mitigation of existing and emerging risks, is updated and
reviewed regularly in the form of comprehensive reports considered by the
Audit and Risk Committee. The Board determines the nature and extent of any
risks it is willing to take in order to achieve its strategic objectives.
The Manager also has responsibility for risk management for the Company. It
works with the Board to identify and manage the principal and emerging risks
and uncertainties and to ensure that the Board can continue to meet its
Corporate Governance obligations.
Key emerging issues that the Board has identified include; rising geopolitical
tensions, including contagion of the Ukraine crisis or tensions between China
and Taiwan into the wider region or an increase in tensions in the South China
Sea; rising inflation and the so-called cost of living crisis impacting demand
for UK-listed shares; and climate change, which is one of the most critical
emerging issues confronting asset managers and their investors. Macro and ESG
considerations, including climate change have been included into the
Company’s investment process. The Board continues to monitor these issues.
The Board seeks to ensure high standards of business conduct are adhered to by
all of the Company’s service providers and that agreed service levels are
met. The Board is responsible for promoting the long-term success of the
Company for the benefit of all stakeholders and in particular its
shareholders. Although the majority of the day-to-day activities of the
Company are delegated to the Manager, the Investment Manager, and other
third-party service providers, the responsibilities of the Board are set out
in the schedule of matters reserved for the Board and the relevant terms of
reference of its committees, all of which are reviewed regularly by the Board.
Transactions with the Alternative Investment Fund Manager and Related Parties
The Alternative Investment Fund Manager (“AIFM”) has delegated the
Company’s investment management to FIL Investments International.
Transactions with the AIFM and related party transactions with the Directors
are disclosed in Note 12 of the Half Year Report for the six months ended 31
December 2023.
Going Concern
In accordance with provision 35 of the 2019 AIC Code of Corporate Governance,
the Directors have assessed the prospects of the Company over a longer period
than the twelve month period required by the “Going Concern” basis. The
Company is an investment fund with the objective of achieving long-term
capital growth by investing in emerging markets. The Board considers long-term
to be at least five years, and accordingly, the Directors believe that five
years is an appropriate investment horizon to assess the viability of the
Company, although the life of the Company is not intended to be limited to
this or any other period.
The Directors have considered the Company’s investment objective, risk
management policies, liquidity risk, credit risk, capital management policies
and procedures, the nature of its portfolio and its expenditure and cash flow
projections. In preparing the Financial Statements, the Directors have
measured the impacts of the war in Ukraine and how the conflict has increased
the risk for business continuity as well as the impact of climate change
risks. The Board has considered the impact of regulatory changes and how this
may affect the Company.
The Board has also assessed the ongoing risks posed on the Company by
continued evolving variants of COVID such as liquidity risks to markets, risks
associated with the maintenance of the current dividend policy and business
continuity risks for the Company’s key service providers. The Board
continues to review emerging risks that could have a potential impact on the
operational capability of the Investment Manager and the Company’s other key
service providers. During the year under review, the Board received updates
from Fidelity and other key service providers confirming that they continued
to service the Company in line with service level agreements and have suitable
arrangements in place to ensure that they can continue to provide their
services to the Company during the ongoing pandemic.
The Directors, having considered the liquidity of the Company’s portfolio of
investments (being mainly securities which are readily realisable) and the
projected income and expenditure, are satisfied that the Company is
financially sound and has adequate resources to meet all of its liabilities
and ongoing expenses and can continue in operational existence for a period of
at least twelve months from the date of this Half Year Report.
Accordingly, the Financial Statements of the Company have been prepared on a
going concern basis.
Responsibility Statement
In accordance with Chapter 4 of the Disclosure Guidance and Transparency
Rules, the Directors confirm that to the best of their knowledge:
* the condensed set of financial statements contained within the Half Year
Report has been prepared in accordance with IAS 34 ‘Interim Financial
Reporting’ and gives a true and fair view of the assets, liabilities,
financial position and return of the Company;
* the Half Year Report includes a fair review of the development and
performance of the Company and important events that have occurred during the
first six months of the financial year and their impact on the condensed
financial statements;
* the Half Year Report includes a description of the principal risk and
uncertainties for the remaining six months of the financial year; and
* the Half Year Report includes a fair review of the information concerning
related party transactions.
The Half Year Report has not been audited or reviewed by the Company’s
Independent Auditor.
For and on behalf of the Board
Heather Manners
Chairman
11 March 2024
Statement of Comprehensive Income
for the six months ended 31 December 2023
Six months ended 31 December 2023 unaudited Year ended 30 June 2023 audited Six months ended 31 December 2022 unaudited
Note Revenue $’000 Capital $’000 Total $’000 Revenue $’000 Capital $’000 Total $’000 Revenue $’000 Capital $’000 Total $’000
Revenue
Investment income 4 9,449 – 9,449 22,272 – 22,272 8,476 – 8,476
Derivative income 4 7,656 – 7,656 17,709 – 17,709 7,653 – 7,653
Other income 4 596 – 596 620 – 620 344 – 344
Total Income 17,701 – 17,701 40,601 – 40,601 16,473 – 16,473
Net gains/(losses) on financial assets at fair value through profit or loss 1 – 39,483 39,483 – 36,553 36,553 – (2,843) (2,843)
Net losses on derivative instruments – (15,667) (15,667) – (37,809) (37,809) – (34,477) (34,477)
Net foreign exchange losses – (522) (522) – (933) (933) – (686) (686)
Total income and gains/(losses) 17,701 23,294 40,995 40,601 (2,189) 38,412 16,473 (38,006) (21,533)
Expenses
Management fees 5 (469) (1,875) (2,344) (923) (3,690) (4,613) (452) (1,810) (2,262)
Other expenses 1 (860) – (860) (1,619) – (1,619) (910) – (910)
Profit/(loss) before finance costs and taxation 16,372 21,419 37,791 38,059 (5,879) 32,180 15,111 (39,816) (24,705)
Finance costs 6 (10,201) – (10,201) (15,653) – (15,653) (6,443) – (6,443)
Profit/(loss) before taxation 6,171 21,419 27,590 22,406 (5,879) 16,527 8,668 (39,816) (31,148)
Taxation (1,022) (270) (1,292) (2,622) 644 (1,978) (724) (797) (1,521)
Profit/(loss) after taxation for the period attributable to Participating Preference Shares 5,149 21,149 26,298 19,784 (5,235) 14,549 7,944 (40,613) (32,669)
Earnings/(loss) per Participating Preference Share (basic and diluted) 7 $0.06 $0.23 $0.29 $0.22 ($0.06) $0.16 $0.09 ($0.45) ($0.36)
1 Transaction costs directly associated with purchases and sales of
non-derivative securities changed presentation in the annual financial
statements for the year ended 30 June 2023 to be included under the ‘Net
gains/(losses) on financial assets at fair value through profit or loss’
line in the capital column of the Statement of Comprehensive Income. In the
prior accounting periods such directly associated transaction costs were
included under ‘Other expenses’. The presentation of directly associated
transaction costs was consistently applied for both for the current period and
comparative reporting periods. This was applied in order to align with best
market practice as relevant for investment companies.
The total column of this statement represents the Company’s Statement of
Other Comprehensive Income prepared in accordance with IFRS. The supplementary
information on the allocation between the revenue account and the capital
reserve is presented under guidance published by the AIC.
All the profit/(loss) and total comprehensive income is attributable to the
equity shareholders of the Company. There are no minority interests.
No operations were acquired or discontinued in the period and all items in the
above statement derive from continuing operations.
Statement of Changes in Equity
for the six months ended 31 December 2023
Note Share premium account $’000 Capital reserve $’000 Revenue reserve $’000 Total equity $’000
Six months ended 31 December 2023 (unaudited)
Total equity at 30 June 2023 6,291 735,860 54,583 796,734
Profit after taxation for the period – 21,149 5,149 26,298
Repurchase of Participating 9 – (4,827) – (4,827)
Preference Shares
Dividend paid to shareholders 8 – – (17,305) (17,305)
Total equity at 31 December 2023 6,291 752,182 42,427 800,900
Year ended 30 June 2023
(audited)
Total equity at 30 June 2022 6,291 741,095 49,375 796,761
(Loss)/profit after taxation for the year – (5,235) 19,784 14,549
Dividend paid to shareholders 8 – – (14,576) (14,576)
Total equity at 30 June 2023 6,291 735,860 54,583 796,734
Six months ended 31 December 2022 (unaudited)
Total equity at 30 June 2022 6,291 741,095 49,375 796,761
(Loss)/profit after taxation for the period – (40,613) 7,944 (32,669)
Dividend paid to shareholders 8 – – (14,576) (14,576)
Total equity at 31 December 2022 6,291 700,482 42,743 749,516
Statement of Financial Position
as at 31 December 2023
Note 31 December 2023 unaudited $’000 30 June 2023 audited $’000 31 December 2022 unaudited $’000
Non-current assets
Financial assets at fair value through profit and loss 10 768,579 778,608 720,229
Current assets
Derivative assets 10 12,766 9,468 10,736
Amounts held at futures clearing houses and brokers 28,400 18,210 23,308
Other receivables 1,989 6,480 2,697
Cash at bank 16,435 18,057 14,277
59,590 52,215 51,018
Current liabilities
Derivative liabilities 10 21,013 12,847 13,709
Other payables 6,256 21,242 8,022
27,269 34,089 21,731
Net current assets 32,321 18,126 29,287
Net assets 800,900 796,734 749,516
Equity
Share premium account 6,291 6,291 6,291
Capital reserve 752,182 735,860 700,482
Revenue reserve 42,427 54,583 42,743
Total Equity Shareholders’ Funds 800,900 796,734 749,516
Net asset value per Particpating Preference Share 11 $8.85 $8.75 $8.23
Statement of Cash Flows
for the six months ended 31 December 2023
Six months ended 31 December 2023 unaudited $’000 Year ended 30 June 2023 audited $’000 Six months ended 31 December 2022 unaudited $’000
Operating activities
Cash inflow from investment income 13,179 24,214 12,298
Cash inflow from derivative income 3,890 6,184 2,560
Cash inflow from other income 20 33 –
Cash outflow from taxation paid (1,022) (1,063) (724)
Cash outflow from the purchase of investments 1 (242,310) (928,894) (570,158)
Cash inflow from the sale of investments 1 276,557 930,627 576,904
Cash outflow from net proceeds from settlement of derivatives (5,742) (4,819) (5,401)
Cash outflow from amounts held at futures clearing houses and brokers (10,190) (6,309) (11,407)
Cash outflow from bank charges – – (80)
Cash outflow from operating expenses 1 (3,231) (5,150) (2,641)
Net cash inflow from operating activities 31,151 14,823 1,351
Financing activities
Cash outflow from CFD interest paid (8,599) (10,111) (3,061)
Cash outflow from short CFD dividends paid (1,539) (5,564) (3,169)
Cash outflow from dividends paid to shareholders (17,305) (14,576) (14,576)
Cash outflow from repurchase of Participating Preference Shares (4,808) – –
Net cash outflow from financing activities (32,251) (30,251) (20,806)
Net decrease in cash at bank (1,100) (15,428) (19,455)
Cash at bank at the start of the period 18,057 34,418 34,418
Effect of foreign exchange movements (522) (933) (686)
Cash at bank at the end of the period 16,435 18,057 14,277
1 Transaction costs directly associated with purchases and sales of
non-derivative securities changed presentation in the annual financial
statements for the year ended 30 June 2023 to be included under the ‘Net
gains/(losses) on financial assets at fair value through profit or loss’
line in the capital column of the Statement of Comprehensive Income. In the
prior accounting periods such directly associated transaction costs were
included under ‘Other expenses’. The presentation of directly associated
transaction costs was consistently applied for both for the current period and
comparative reporting periods. This was applied in order to align with best
market practice as relevant for investment companies.
Notes to the Financial Statements
for the six months ended 31 December 2023
1. Principal Activity
Fidelity Emerging Markets Limited (the ‘Company’) was incorporated in
Guernsey on 7 June 1989 and commenced activities on 19 September 1989. The
Company is an Authorised Closed-Ended Investment Scheme as defined by The
Authorised Closed-Ended Investment Schemes Rules and Guidance, 2021 (and, as
such, is subject to ongoing supervision by the Guernsey Financial Services
Commission). The Company is listed on the London Stock Exchange and is a
constituent of the FTSE 250 Index.
The Company’s registered office is at Level 3, Mill Court La Charroterie, St
Peter Port, Guernsey GY1 1EJ, Channel Islands.
The Company’s investment objective is to achieve long-term capital growth
from an actively managed portfolio made up primarily of securities and
financial instruments providing exposure to emerging market companies, both
listed and unlisted.
2. Publication of Non-statutory Accounts
The financial statements in this half year report have not been audited by the
Company’s Independent Auditor. The financial information for the year ended
30 June 2023 is extracted from the latest published annual report of the
Company which was delivered to the Guernsey Financial Services Commission.
3. Accounting Policies(i) Basis of Preparation
The interim financial statements for the six months period ended 31 December
2023 have been prepared in accordance with International Accounting Standard
34, ‘Interim Financial Reporting’. The interim financial statements should
be read in conjunction with the annual financial statements for the year ended
30 June 2023, which have been prepared in accordance with International
Financial Reporting Standards as adopted by the European Union (‘IFRS’),
which comprise standards and interpretations approved by the International
Accounting Standards Board (‘IASB’), the IFRS Interpretations Committee
and interpretations approved by the International Accounting Standards
Committee (‘IASC’) that remain in effect and the Companies (Guernsey) Law,
2008.
The financial statements have been prepared under the historical cost
convention, as modified by the revaluation of financial assets and financial
liabilities at fair value through profit or loss.
(ii) Going Concern
The Directors have a reasonable expectation that the Company has adequate
resources to continue in operational existence for at least twelve months from
the date of approval of these financial statements. In making their assessment
the Directors have reviewed the income and expense projections, the liquidity
of the investment portfolio, stress testing performed and considered the
Company’s ability to meet liabilities as they fall due. Accordingly, the
Directors consider it appropriate to adopt the going concern basis of
accounting in preparing these financial statements.
4. Income
Six months ended 31 December 2023 unaudited $’000 Year ended 30 June 2023 audited $’000 Six months ended 31 December 2022 unaudited $’000
Investment income
UK dividends 325 798 542
Overseas dividends 9,109 21,474 7,934
UK and overseas scrip dividends 15 – –
9,449 22,272 8,476
Derivative income
Dividends received on long CFDs 2,325 5,220 1,774
Interest received on CFDs 1,014 1,414 519
Option income 4,317 11,075 5,360
7,656 17,709 7,653
Other income
Interest income from cash and cash equivalents and collateral 576 587 344
Fee rebate 20 33 –
596 620 344
Total income 17,701 40,601 16,473
5. Management Fees
Revenue $’000 Capital $’000 Total $’000
Six months ended 31 December 2023 (unaudited)
Management fees 469 1,875 2,344
Year ended 30 June 2023 (audited)
Management fees 923 3,690 4,613
Six months ended 31 December 2022 (unaudited)
Management fees 452 1,810 2,262
Under the Investment Management Agreement (‘the IMA’), Fidelity
International is entitled to receive a Management Fee of 0.60% per annum of
the Net Asset Value of the Company. Fees will be payable monthly in arrears
and calculated on a daily basis.
Management fees incurred by collective investment schemes or investment
companies managed or advised by the Investment Manager are reimbursed.
6. Finance Costs
Revenue $’000 Capital $’000 Total $’000
Six months ended 31 December 2023 (unaudited)
Dividends paid on short CFDs 1,517 – 1,517
Interest paid on CFDs 8,684 – 8,684
10,201 – 10,201
Year ended 30 June 2023 (audited)
Dividends paid on short CFDs 5,270 – 5,270
Interest paid on CFDs 10,383 – 10,383
15,653 – 15,653
Six months ended 31 December 2022 (unaudited)
Bank charges 80 – 80
Dividends paid on short CFDs 2,979 – 2,979
Interest paid on CFDs 3,384 – 3,384
6,443 – 6,443
7. Earnings/(Loss) per Participating Preference Share
Six months ended 31 December 2023 unaudited $’000 Year ended 30 June 2023 audited $’000 Six months ended 31 December 2022 unaudited $’000
Revenue earnings per Participating Preference Share $0.06 $0.22 $0.09
Capital earnings/(loss) per Participating Preference Share $0.23 $(0.06) $(0.45)
Total earnings/(loss) per Participating Preference Share – basic and diluted $0.29 $0.16 $(0.36)
The earnings/(loss) per Participating Preference Share is based on the
profit/(loss) after taxation for the period divided by the weighted average
number of Participating Preference Shares in issue during the period, as shown
below:
Six months ended 31 December 2023 unaudited $’000 Year ended 30 June 2023 audited $’000 Six months ended 31 December 2022 unaudited $’000
Revenue profit after taxation for the period 5,149 19,784 7,944
Capital profit/(loss) after taxation for the period 21,149 (5,235) (40,613)
Total profit/(loss) after taxation for the period attributable to Participating Preference Shares 26,298 14,549 (32,669)
Number Number Number
Weighted average number of Participating Preference Shares in issue 90,985,735 91,100,066 91,100,066
8. Dividend Paid to Shareholders
Six months ended 31 December 2023 Unaudited $’000 Year ended 30 June 2023 audited $’000 Six months ended 31 December 2022 unaudited $’000
Dividend Paid
Dividend of 19.00 cents pence per ordinary share paid for the year ended 30 June 2023 17,305 – –
Dividend of 16.00 cents pence per ordinary share paid for the year ended 30 June 2022 – 14,576 14,576
No dividend has been declared in respect of the six months ended 31 December
2023 (six months ended 31 December 2022: none).
9. Share Capital
31 December 2023 Number of shares 30 June 2023 Number of shares 31 December 2022 Number of shares
Authorised
Founder shares of no par value 1,000 1,000 1,000
Issued
Participating Preference Shares held outside Treasury
Beginning of the period 91,100,066 91,100,066 91,100,066
Participating Preference Shares repurchased into Treasury (637,175) – –
End of the period 90,462,891 91,100,066 91,100,066
Participating Preference Shares held in Treasury*
Beginning of the period – – –
Participating Preference Shares repurchased into Treasury 637,175 – –
End of the year period 637,175 – –
Total Participating Preference Shares including held in Treasury 91,100,066 91,100,066 91,100,066
* The ordinary shares held in Treasury carry no rights to vote, to receive a
dividend or to participate in a winding up of the Company.
The Board of Directors is mindful that the Company’s shares have traded at a
discount to NAV for some time, and frequently deliberates appropriate discount
control mechanisms to address the imbalance between the demand and supply of
the Company’s shares. In recognition of this, on 13 November 2023, the
Company implemented a share buyback programme to repurchase up to 14.99% of
issued share capital, which was renewed at the Annual General Meeting on
7 December 2023. The Board intends to continue using its buyback programme to
address the discount to NAV with the ambition that it may ultimately be
maintained in single digits in normal market conditions on a sustainable
basis.
The costs associated with the repurchase of the shares of $4,827,000 were
charged to the capital reserve for the period ended 31 December 2023.
The Company may issue an unlimited number of Shares of no par value.
Founder Shares
All of the Founder Shares were issued on 6 June 1989. The Founder Shares were
issued at $1 each par value.
The Founder Shares are not redeemable. At the Extraordinary General Meeting of
the Company on 30 October 2009 and in accordance with The Companies
(Guernsey) Law, 2008 it was approved that each Founder Share be redesignated
as no par value shares.
The Founder Shares confer no rights upon holders other than at general
meetings, on a poll, every holder is entitled to one vote in respect of each
Founder Share held.
10. Fair Value Hierarchy
The Company is required to disclose the fair value hierarchy that classifies
its financial instruments measured at fair value at one of three levels,
according to the relative reliability of the inputs used to estimate the fair
values.
Classification Input
Level 1 Valued using quoted prices in active markets for identical assets
Level 2 Valued by reference to inputs other than quoted prices included in level 1 that are observable (i.e. developed using market data) for the asset or liability, either directly or indirectly
Level 3 Valued by reference to valuation techniques using inputs that are not based on observable market data
Categorisation within the hierarchy has been determined on the basis of the
lowest level input that is significant to the fair value measurement of the
relevant asset. The table below sets out the Company’s fair value
hierarchy:
31 December 2023 (unaudited) Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000
Financial assets at fair value through profit or loss
Investments in equity securities 760,349 – 810 761,159
Equity linked notes – 2,334 – 2,334
Investee funds – – 5,086 5,086
Derivative instrument assets – Futures contracts 429 – – 429
Derivative instrument assets – CFDs – 12,337 – 12,337
760,778 14,671 5,896 781,345
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities – Futures contracts 6,791 – – 6,791
Derivative instrument liabilities – Options 200 42 – 242
Derivative instrument liabilities – CFDs – 13,980 – 13,980
6,991 14,022 – 21,013
30 June 2023 (audited) Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000
Financial assets at fair value through profit or loss
Investments in equity securities 751,117 – 1,009 752,126
Equity linked notes – 17,433 – 17,433
Investee funds – 3,943 5,106 9,049
Derivative instrument assets – Futures contracts 849 – – 849
Derivative instrument assets – Options 13 241 – 254
Derivative instrument assets – CFDs – 8,365 – 8,365
751,979 29,982 6,115 788,076
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities – Options 1,516 425 – 1,941
Derivative instrument liabilities – CFDs – 10,906 – 10,906
1,516 11,331 – 12,847
31 December 2022 (unaudited) Level 1 $’000 Level 2 $’000 Level 3 $’000 Total $’000
Financial assets at fair value through profit or loss
Investments in equity securities 697,189 – – 697,189
Equity linked notes – 13,603 – 13,603
Investee funds – 3,641 5,796 9,437
Derivative instrument assets – Futures contracts 982 – – 982
Derivative instrument assets – Options 14 – – 14
Derivative instrument assets – CFDs – 9,740 – 9,740
698,185 26,984 5,796 730,965
Financial liabilities at fair value through profit or loss
Derivative instrument liabilities – Options 599 90 – 689
Derivative instrument liabilities – CFDs – 13,020 – 13,020
599 13,110 – 13,709
Two holdings in Investee Funds were valued using the most recently available
valuation statements as received from the respective general
partner/manager/administrator, updated to include subsequent cash flows (year
ended 30 June 2023: two Investee Fund holdings, six months ended 31 December
2022: two Investee Funds holdings). Eleven holdings (year ended 30 June 2023:
nine holdings and six month ended 31 December 2022: ten holding) had a nil
value.
As the key input into the valuation of Level 3 investments is official
valuation statements from the Investee Funds, we do not consider it
appropriate to put forward a sensitivity analysis on the basis that
insufficient value is likely to be derived by the end users of this report.
The following table summarises the change in value associated with Level 3
financial instruments carried at fair value for the six months ended
31 December 2023, year ended 30 June 2023 and for the six months ended
31 December 2022:
Movements in level 3 investments during the period/year 31 December 2023 unaudited $’000 30 June 2023 audited $’000 31 December 2022 unaudited $’000
Opening balance 6,115 5,809 5,809
Sales (4,178) (4,045) (415)
Transfers into level 3 – 1,009 –
Realised (losses)/gains (8,900) 3,112 302
Net change in unrealised gains 12,859 230 100
Closing balance 5,896 6,115 5,796
During the period the Company participated in a tender offer which was being
undertaken in Detsky Mir’s restructuring from being a public listed company
to a private company. The Company’s application was successful and it
received proceeds of RUB 300.5 million, (approx. $3.1 million based on
exchange rates at that time).
The Company’s retained holdings in Russian entities have been written down
to $Nil.
11. Net Asset Value per Participating Preference Share
31 December 2023 unaudited 30 June 2023 audited 31 December 2022 unaudited
Net assets $800,900,000 $796,734,000 $749,516,000
Participating Preference Shares in issue 90,462,891 91,100,066 91,100,066
Net Asset Value per Participating Preference Share $8.85 $8.75 $8.23
12. Transactions with the Manager and Related Parties
FIL Investment Services (UK) Limited is the Company’s Alternative Investment
Fund Manager and has delegated portfolio management to FIL Investment
Management International. Both companies are Fidelity group companies.
Details of the current fee arrangements are given in Note 5 above. During the
period, management fees of $2,344,000 (year ended 30 June 2023: $4,613,000
and six months ended 31 December 2022: $2,262,000) were payable to the
Manager. Amounts payable at the reporting date are included in other payables.
At the date of this report, the Board consisted of five non-executive
Directors (as shown in the Half Year Report for the six months ended 31
December 2023) all of whom are considered to be independent by the Board. None
of the Directors has a service contract with the Company.
The Chairman receives an annual fee of £50,000, the Chairman of the Audit
Committee and Senior Independent Director receives an annual fee of £38,000
and a Director receives an annual fee of £36,000.
The following members of the Board hold Participating Preference Shares in the
Company at the date of this report: Heather Manners 10,000 shares, Torsten
Koster 15,000 shares, Dr Simon Colson 4,416 shares, Katherine Tsang nil shares
and Mark Little* nil shares.
* Appointed 17 January 2024
The financial information contained in this Half-Yearly Results Announcement
does not constitute statutory accounts as defined in section 435 of the
Companies Act 2006. The financial information for the six months ended 31
December 2023 and 31 December 2022 has not been audited or reviewed by the
Company’s Independent Auditor.
The information for the year ended 30 June 2023 has been extracted from the
latest published audited financial statements, which have been filed with the
Registrar of Companies, unless otherwise stated. The report of the Auditor on
those financial statements contained no qualification or statement under
sections 498(2) or (3) of the Companies Act 2006.
Neither the contents of the Company's website nor the contents of any website
accessible from hyperlinks on the Company's website (or any other website) is
incorporated into, or forms part of, this announcement.
A copy of the Half-Yearly Report will shortly be submitted to the National
Storage Mechanism and will be available for inspection at
www.morningstar.co.uk/uk/NSM
The Half-Yearly Report will also be available on the Company's website at
www.fidelity.co.uk/emergingmarkets where up to date information on the
Company, including daily NAV and share prices, factsheets and other
information can also be found.
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