Aberdeen Global - Hozam Plaza

Emerging Markets EquityFor the year ended 30 September 2012PerformanceFor the year ended 30 September 2012, the value of theEmerging Markets Equity - A Accumulation shares increasedby 22.28% compared to an increase of 17.33% in the benchmark,the MSCI Emerging Markets Index.Source: Lipper, Basis: total return, NAV to NAV, net of annual charges, gross incomereinvested, USD.Manager’s reviewEmerging markets equities posted solid gains during the year underreview, despite persistent global growth fears and continued headwindsfrom Europe. Stock markets rebounded after a weak start amid reliefthat the Eurozone was saved from a breakup and signs of improvementin the US economy. Ample liquidity injections by leading central banksas well as the US Federal Reserve’s pledge to keep interest rates lowfor an extended period also bolstered investor sentiment. However,the rally proved short-lived as a sharper-than-expected slowdownacross the developing world and resurgent fears over the solvency ofperipheral European nations clouded recovery prospects. Marketsquickly regained their momentum until the period-end after majorcentral banks unveiled extraordinary support to bolster growth.During the year, we introduced global miner BHP Billiton, given itsattractive valuations, diversified commodity exposure and good trackrecord of being cost efficient. We also initiated a position in Philippineconglomerate Ayala, which trades at a discount to the value of itsunderlying entities. Conversely, we divested Sri Lankan bank DFCC andsold Indian mobile phone operator Bharti Airtel on concerns over theincreasingly competitive domestic operating environment.OutlookSince the recent round of central bank easing, worries overthe health of the global economy has returned to focus. Europe’sfundamentals have not changed, the US is still in danger of slippingback into recession as the fiscal cliff looms and China is growing ata more modest pace. Emerging stock markets are therefore likely toremain subdued, with the outlook susceptible to further economicor policy disappointments. Earnings growth in the short term isalso expected to be marginal in the circumstances. During suchtimes, balance sheet strength and managing growth in a relativelyconservative and disciplined manner become even more importantand these are the very attributes that characterise many ofour holdings.Portfolio reviewAt the stock level, several Mexican holdings were key contributorsto relative return. These included lender Grupo Fianciero Banorte,beverage company and convenience store operator FEMSA as well asairport operator Grupo Aeroportuario de Sur, all of which were buoyedby healthy earnings and a positive domestic outlook. The fund benefited,too, from holding Tenaris; the Argentine steel-pipe maker continued todo well, aided by improving margins and healthy revenues.Conversely, Vale lagged because of softer iron ore prices and thataffected its results. Given the cautious outlook, the Brazilian minerhas reduced capital spending this year and divested non-core assets,including its Colombian coal operations and stakes in offshore oiland gas blocks, to improve capital allocation. Turkish lender Akbankfaced pressure after Citibank’s sale of more than half its stake in thecompany and its quarterly profits fell below expectations. Indianmotorcycle maker Hero MotoCorp also underperformed. The companyposted robust quarterly results that were supported by its solid productmix and pricing power. However, its share price lagged the domesticmarket on concerns that future demand would fall in tandem with theweak economy, shrinking rural incomes and a rise in fuel prices afterthe government cut subsidies.www.aberdeen-asset.com69