Utilico Emerging Markets Regulatory News (UEM)

12 September 2022

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

In August, UEM's NAV total return increased by 6.5%, outperforming the MSCI Emerging Markets total return Index which was up 5.1% in Sterling terms for the period.

Global equity markets were mixed during August, with developed markets broadly retreating whilst some EM delivered robust performances. The US Federal Reserve reiterated its hawkish stance on interest rate increases, notwithstanding evidence that inflation is starting to peak with CPI easing to 8.5% for the year to July, down from 9.1% in June. This saw the S&P Index fall 4.2% in August while the USD (as measured by DXY index) strengthened to its highest level in two decades. 

China markets were weak, with the Shanghai Composite down by 1.6% and the Hang Seng Index easing 1.0% in August on concerns over the drop in real estate sales, as well as weak factory and retail activity. In a surprise move, China's central bank cut key lending rates, but the response in credit growth has so far been lacking. Recent news of another major city going into lockdown highlights the continuing challenge of maintaining a zero-covid approach.

Elsewhere there were some robust performances with the India SENSEX increasing 3.4%, the Vietnam VSE up 6.1% and the Brazil Bovespa up 6.2%. All three markets are benefitting from increased investor attention as the impact of geopolitical tensions between China and the US and the effect of lockdowns on Chinese manufacturing are digested. Vietnam and India are emerging as major beneficiaries as large corporations such as Apple and Google shift production away from China. In Brazil inflation has peaked and the interest rate hiking cycle looks to be near, if not at, an end.

Sterling depreciated against almost every major currency in August on political uncertainty over a new Conservative leader and concerns over the rapidly widening current account deficit on higher energy costs. Sterling fell 4.4% against the US Dollar, 3.0% versus the Euro, 2.2% against the Chinese Renminbi, 4.1% versus the Indian Rupee, and 4.7% against the Brazilian Real.

PORTFOLIO

Performance across the portfolio was mostly positive and there were three changes to the constituents of UEM's top thirty holdings in August, primarily due to partial realisations of KT Corporation, Linknet and China Everbright Greentech. Re-entries included Engie Energia Chile, whose shares rebounded 23.1% on the back of improving hydrological conditions, and Corfi Colombiana which was broadly flat. A new entry to the top thirty holdings was Adani Ports and Special Economic Zone ("APSEZ"), which is India's largest integrated port and logistics company operating 13 domestic ports handling dry cargo, liquid cargo, crude and containers. APSEZ's share price was up 9.9% in August on the back of good results.

There were some excellent performers in Brazil in August. Santos' share price was up 23.7% as it delivered robust Q2 results demonstrating strong operational momentum with improving volume mix and achieving its highest EBITDA margins in a decade. Orizon's share price soared 25.8% as the transformational nature of the acquisition of Estre was recognised by investors. Rumo's share price was up by 15.2% as it reported record monthly volumes in July and management guidance looks firmly on track. Meanwhile, Ocean Wilsons remained a laggard, with its share price down 4.5% over the period after reporting losses mainly due to poor performance of its investment portfolio. 

Elsewhere the standout performers included OMA, up 6.3%, Powergrid India, up 7.1%, and Kunlun Energy, up 18.5%. Kunlun delivered surprisingly strong H1 results with EBITDA growth of 27%. Elevated LNG prices and the ability of gas distribution companies to pass these through to end-users has weighed heavily on the sector, and Kunlun is one of the few that has successfully risen to this challenge. Weaker share price performance was seen with China Gas, down 7.8% on concerns of the weak real estate market on new connections. There were also negative share price movements at Datang Renewable, down 7.1%, and Naver was down 7.5%, the latter due to poor reception to Q2 results and generally weak market sentiment towards internet stocks.

DEBT

UEM's bank debt increased from £19.3m to £19.9m due to FX movements, with the debt all drawn in Euros and unchanged at EUR 23.0m over the month. During August, purchases totalled £10.0m and realisations totalled £7.3m.

OTHER

UEM's share price ended August at 221.00p, up 6.8% over the month. The discount to NAV narrowed slightly to 13.8% from 14.0% as UEM is continuing to take advantage of the discount, buying back 0.8m shares at an average price of 217.18p.

UEM declared a first quarterly interim dividend of 2.00p per ordinary share in respect of the year ending 31 March 2023, which will be paid on 23 September 2022 to shareholders on the register on 2 September 2022.

Name of contact and telephone number for enquiries:

ICM Investment Management Limited +44(0)1372 271486

Charles Jillings / Alastair Moreton

Montfort Communications

Gay Collins, Pippa Bailey +44(0)20 3770 7913

utilico@montfort.london