An update from our investment managers, Andrew Lister and Bernard Moody
Emerging market investors have, in recent weeks, endured material losses as a result of the spread of the Covid-19 virus and its dramatic impact on emerging economies, their currencies and the companies that operate within them. Matters have been exacerbated by the recent spat between Russia and Saudi Arabia over oil production, which has pushed the price of oil well below $30, with obvious implications for emerging markets that export energy. Stock markets dislike uncertainty and, at present, uncertainty is in plentiful supply.
To date, we have made a limited number of changes to the portfolio. We have increased liquidity through the partial redemption of open ended fund investments to offset the impact of our gearing, and to allow selective purchases of closed end funds where discounts to net asset value are especially attractive. We are actively surveying the market for further opportunities to add to markets and holdings where we believe the reaction has been too severe. We remain in close dialogue with our underlying managers in order to understand their thoughts on markets, portfolio positioning and to ensure their teams are operating effectively under the current challenging conditions.
A significant economic policy response is being deployed by central banks and governments around the world, including in emerging markets. While these have had little impact in reducing market volatility and declines in the short term, further interest rate cuts, quantitative easing and fiscal stimulus are being unveiled on a near daily basis. Markets will eventually find a floor at which valuations reflect the sum of all fears. Emerging markets have seen significant investor withdrawals already, and market declines mean that valuations already price in declining earnings in 2020, if not into 2021.
Under such conditions we are grateful to be managing a closed end vehicle, within which we continue to adopt a long term investment approach. Our strategy results in a highly diversified, but actively managed, portfolio which we believe puts it in good stead to weather this crisis as it has done similar episodes in the last two decades.