Fidelity Emerging Markets Limited (FEML) makes use of an extended toolkit: the ability to increase gross exposure; to take both long and short positions in stocks; and to generate additional income and manage risk through options.
By scouring the breadth of the market-cap spectrum for ideas and making use of our excellent team of global analysts, we identify overlooked companies across regions and industries.
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Emerging markets: A Latin American bargain
Inter & Co (Nasdaq: INTR) is the holding company for Banco Inter, a Brazilian digital bank and super-app that has started to gain significant scale. With room for further fragmentation across retail banking in Brazil, banks such as Inter, which have strong funding dynamics and have not yet reached their maximum potential market share, stand to benefit. Trading on a price-to-book-value ratio of around 1.3, it’s an example of a great business in Latin America where the share price has been depressed by weak sentiment.
While the fiscal and interest-rate backdrop in Brazil has deteriorated, the broader economic picture is more positive, with unemployment at decade lows, GDP growth robust and credit quality positive. The impact that higher rates will have on Inter’s fundamentals is limited. We expect net interest margins to keep expanding and the cost of risk to remain benign given a tight labour market. All this creates an auspicious backdrop for Inter, which enjoys a strong fundamental position with a great outlook for future profitability.
Buenaventura (NYSE: BVN) is a Peruvian gold and copper miner. The share price has suffered as local pension funds have sold equities to fund large outflows following reforms that allow investors to access their pensions early. However, this obscures a positive fundamental backdrop for the group, which has delivered strong operational performance and upgraded guidance, something that is relatively rare in mining.
We also think that the backdrop for both commodities that Buenaventura mines is very strong. Copper is a particular area of conviction for us, with attractive supply-demand dynamics, underpinned by the copper-intensive energy transition and a very muted supply outlook. Buenaventura is one of the few mining companies with a strong pipeline of development assets, so they can increase copper production into a rising supply/demand deficit. We also think the outlook for gold is attractive. It should benefit as central banks continue to move their foreign-exchange reserves into gold over the next few decades. We see Buenaventura as a high-quality producer that should benefit from a constructive outlook for both metals.
Full speed ahead
Full Truck Alliance (NYSE: YMM) is a digital truck broker in China. The Chinese trucking industry is fragmented, and most truckers operate as independent businesses, meaning FTA should do well as it gains share from offline truck brokers by offering lower logistics costs and efficiencies.
We also see solid potential for FTA’s take rate (the proportion of revenue it retains from the transactions it facilitates) to expand, given this is currently low relative to that of the offline model, and commission is a small expense for truckers.
With 25% of FTA’s market value in cash, we see scope for the firm to raise its payouts to shareholders in the years ahead. The company is trading on a price/ earnings (p/e) ratio of 18, an attractive multiple for an undermonetised business with a monopoly position.
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