There has been growing concern lately toward investments in emerging markets. The asset class has sold off recently and has been trading at a discount of 30% to the valuation of developed markets (as at April 30, 2014).
While China’s markets have received a great deal of media attention, another example of an oversold market in the spotlight is Russia. I visited Moscow in mid-May and I remain impressed with the entrepreneurial spirit I found there.
Despite current sanctions, Russia still offers long-term investment potential. Generally, it’s not good practice to avoid a market because of some negative headlines. On the contrary, it’s during these times you may find attractive prices.
Our focus is on high-quality companies, which don’t usually sell at low prices. If you can buy them at fair value, good; but if you can buy them discounted to their intrinsic value, then that’s an opportunity where you can earn very good returns. That is precisely the opportunity we’re seeing in Russia. The country has between 200 to 300 listed companies (in Moscow Exchange) and while we don’t look at each one, there are several on this list worth owning.
Currently, we own four Russian companies in Trimark Emerging Markets Class. One of them, ITE Group, is actually based in the U.K. That gives us the benefit of U.K. corporate governance, with the majority of the business is in Russia.
Last quarter, it was the one of the worst performing stocks in the portfolio. This is partly because of foreign exchange rates movement – the British pound, which ITE uses to report its earnings, appreciated against Russian ruble and Turkish lira. Nonetheless, ITE Group is still a leader in what they do: organizing international trade exhibitions and conferences, and events in growing and developing markets, with a dominant position in Russia and certain other countries in the Commonwealth of Independent States (CIS).
As events unfold, we’ll keep our eye on opportunities in Russia.
Why does the Trimark discipline work so well in the emerging markets space? It’s because we work hard to develop a deep understanding of what we invest, and always stick to our investment discipline – owning businesses in structurally growing industries, generating sustainable high-levels of return on invested capital and free cash flow, with competent management teams.
Learn more about the Trimark Investments team.
Note: The company mentioned in the above article was selected for illustrative purposes only and are not intended to convey specific investment advice.