Aberdeen Emerging Markets Investment Company Limited

An update from our investment managers, Andrew Lister and Bernard Moody – 5 November 2020

The Covid-19 pandemic has made 2020 a challenging time for investors in most major asset classes, including emerging market equities. However, whilst the social and economic impacts of the virus have negatively impacted global growth, the unprecedented measures adopted by global central banks have resulted in a rapid recovery in stock markets since the lows of March 2020 when, with hindsight, the level of panic gripping markets had become irrational. Whilst Aberdeen Emerging Market Investment Company's share price and net asset value per share declined in the first quarter of 2020, they have recovered sharply and at the time of writing both are up by close to 5% on a total return basis for the calendar year to date. This is a remarkable outcome in the context of the upheaval wrought by the pandemic.

The overall return of the company's portfolio masks material divergence between individual markets and regions within the asset class. In Asia, the dominant economies of China, Korea and Taiwan (which account for around 60% of the Company's portfolio) endured a relatively short and sharp impact, with social restrictions having been eased and economies already in "recovery mode". The stock exchanges in these countries are also home to many of the larger technology-focused growth companies within emerging markets, which have benefitted from the social changes adopted to quell the spread of the virus. In contrast, economies in Latin America, Africa and many of the smaller Asian countries have endured more challenging circumstances, often with declines on local stock exchanges compounded by weakening currencies as investors withdraw to safe haven assets.

While the recovery in markets is welcome, we believe the global stimulus that has restored confidence for now may be masking the longer term impact of the pandemic on corporate earnings for many companies. We remain alert to the risks of Covid-19 “second waves” and to market volatility around the US presidential election. With such a wide range of economic and market outcomes possible from here, we consider it prudent to adopt a slightly cautious stance. This is reflected in the use of only a portion of the company’s borrowing facility and selective exposure to emerging market fixed income, alongside our more traditional selection of actively managed best of breed open and closed end funds. We will seek to continue taking advantage of volatility wherever possible, ideally by adding to well managed closed end funds at attractive discounts to net asset value.