Emerging markets (EM) returns were negative in Q1 2022, with Sun Life Schroder Emerging Markets Fund underperforming the index. Both country allocation and stock selection were negative.
At a country level, exposure to Russia, China, and Egypt underperformed. Following Russia’s invasion of Ukraine, Schroders valued all Russian equity holdings at an effective price of zero on March 3, 2022, and MSCI did so on March 9, 2022. As a result, Russian allocation hurt the fund’s performance. Additionally, China lagged as COVID-19 induced lockdowns and regulatory concerns relating to U.S.-listed Chinese stocks negatively impacted performance.
Underweighting Saudi Arabia and India also hurt the fund’s performance. Saudi Arabia, a major oil exporter, outperformed as oil prices rallied. The Indian market was driven higher by demand from domestic investors. These effects offset the fund’s gains from overweighting Brazil and South Africa that benefitted from a broad-based rally in commodities.
Stock selection in China was negative with an overweight position in Great Wall Motor and an underweight position in China Construction Bank. Great Wall Motor, an automobile manufacturer, underperformed as supply chain and cost issues pressured the firm. China Construction Bank rose in Q1 as the banking sector outlook turned positive with the government announcing measures to boost the economy.
In Taiwan, an overweight position in chipmaker Mediatek and network equipment maker Accton Technology, negatively impacted stock selection. Both Mediatek, and Accton fell in Q1 on concerns about growth prospects in the wake of weaker global consumption.
In South Africa, an underweight position in the multinational holding firm, Naspers and overweight positions in financial services firm FirstRand and mining firm Gold Fields positively impacted stock selection. Naspers struggled as one of its holding companies, Tencent, posted poor results. FirstRand was helped by a rebound in South Africa’s financial sector and Gold Fields performance was helped by rising price of gold.
In South Korea, an overweight position in Korea Zinc and participation in the LG Energy Solutions IPO positively impacted stock selection. The performance of both Korea Zinc and LG Energy Solutions benefitted from the electric vehicle boom.