Invesco Funds Series 5 Interim Report - Invesco Global Product Range

Invesco Emerging Markets Equity FundInvestment Adviser’s Report on behalf of the ManagerGlobal emerging markets initially came under pressure as a period ofdeclining liquidity and risk aversion prompted equity weakness across allregions. To combat depreciating currencies, interest rates were raised in anumber of countries including Brazil, Turkey and India. By early February,stock prices staged a recovery, aided by currency stabilisation andencouraging economic data.Emerging Asia was the best performing region with strong gains beingregistered in India as financial markets reacted favourably to the probusinessparty political BJP winning the general election. In Latin America,stocks in Mexico outshone those in Brazil as the former drew benefit fromupbeat news, such as rising consumer confidence levels and employmentgrowth, on the economy. As tensions between Russian and Ukraine beganto recede, sentiment towards emerging Europe improved. After ten yearsof negotiations, Russia and China finally agreed a US$400 billion gas supplydeal in May.The Fund’s “A” Shares rose by 5% during the six-month period to the end ofMay 2014, compared to a gain of 1.9% in the MSCI Emerging Markets (US$)index. This placed the Fund in the first quartile of its peer group, the GIFSGlobal Emerging Markets Equity sector, which increased by an average of2.3%.Our holdings in Asian companies, particularly those based in Korea, Taiwanand India, contributed the most towards Fund performance. The falloutfrom the Ukrainian standoff had an adverse impact on our Russian holdings.At a sector level, there were healthy returns from information technology,financials and consumer discretionary. Disappointing returns wereregistered from our holdings in telecoms.The biggest stock contributor towards performance was HikmaPharmaceuticals, a Jordanian-based distributor and generic manufacturerwith a diversified business both in terms of geography and products. Webelieve that Hikma has positioned itself as one of the leading players in itsfield and continues to successfully build up its profile in many countries.We believe that investor sentiment towards global emerging equity marketsis improving. In recent months, some emerging countries have recoupedsome of their earlier equity losses as outflows begin to reverse amidencouraging economic news.Asia has an enviable and consistent track record of economic growth,supported by subdued inflation, current account surpluses and prudent fiscalmanagement. China is rebalancing, and that is to some extent a painfulprocess, so growth may well slow here. However, we believe that both forthe global economy and for emerging markets, rebalancing in China towardsa more domestic and consumption led growth will be beneficial. Economicgrowth in Latin America has been slowing but still remains positive. Webelieve that weaker currencies, which we have seen, will provide a boost tocompetitiveness in the second half of 2014 and into next year. If this is alliedwith an improving economic backdrop in the developed world, then thisshould help economies rebound in Latin America. In emerging Europe, mostcountries are still showing reasonable economic growth. We expect Turkeywill slow in 2014 in the face of higher interest rates. However, in our view,Poland, Hungary and the Czech Republic are likely to benefit from their linksto the improving economies of Western Europe.Dated: 30 June 2014 – Invesco Global Asset Management Limited03 Invesco Funds Series 5