Templeton Emerging Markets, the investment trust focused on companies operating in emerging markets, saw its first quarter investment gains almost entirely wiped out in the second quarter.
The trust ended the first half of 2012 up 0.3% on the year in terms of net asset value (NAV), despite NAV tumbling 8.5% in the second quarter.
The trust's performance lagged that of its benchmark index, the MSCI Emerging Markets index, which rose 3.2% over the half-year period but which fell 7.1% in the second quarter.
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The trust has 65.9% of its holdings in Asia, 17.4% in Latin American and Caribbean countries, 13.5% in Europe and the rest in the Middle East or Africa. During the quarter the company increased its investments in Jordan, South Africa and Poland, topping up holdings in South African platinum producer Impala Platinum and Polish property developer Polnord, while opening a new position in the Arab Potash Company.
Its biggest bet currently is on Hong Kong & China (25.5% of portfolio), followed by Brazil (15.2%) and Thailand (13.8%). Brazil and China were two of the worst performing countries for the trust's portfolio in the second quarter, declining by 2.95% and 2.70% respectively. Indonesia, up 0.02%, was a rare bright spot during the three month period. The other consolation was the trust's relatively small exposure to Argentina, where stock markets plummeted 45% in sterling terms after the country's unilateral decision to nationalise YPF, the country's largest oil and gas company.
"Emerging markets now represent approximately one third of the world's stock market capitalisation. Moreover, emerging market economies are expected to grow at a significantly faster rate than developed economies. Given good growth projections in many emerging countries, reducing dependence on developed markets as intra-regional trade grows, youthful populations and generally better debt-to-GDP [gross domestic product] ratios than many developed markets, we firmly believe that these markets should do well in the long term," the trust's statement said.
"For example, we are already seeing some emerging market companies shopping for assets in Europe at bargain prices and growing their global presence. The worries and uncertainly are likely to continue to create some angst in the global market, which could spill over into emerging markets but experience has shown that uncertainty often presents opportunities," the company added.
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