Fidelity: The enduring case for emerging markets

A diverse opportunity set

After a challenging period, we have started to see signs of stabilisation in China, which should prove supportive for the broader EM universe due to the market’s size and influence. We expect further stimulus measures to come through in China over the coming months - likely targeted at supporting consumer confidence - and this should result in an improved backdrop for EM investors. In China, our focus is on companies that have good capital return programmes for shareholders, whether that is through dividends or buybacks.

Political turbulence and a shifting monetary policy backdrop across Latin America have caused valuations to fall to very attractive levels. Specifically, we see select opportunities across Mexico, where it is possible to invest in high quality companies with dominant market positions that are trading at attractive valuations, and which we expect to be less impacted by any possible increase in tariffs. A good example is Mexican company Gruma, a leading tortilla maker that has a dominant position in a number of markets globally and is relatively insulated from tariffs given its local production bases.

From a sector perspective, the financials space remains interesting. We are focused on fintechs such as Nu Bank in Brazil, as well as leading private sector banks in India, and finally value opportunities in central and eastern Europe, for example among high quality Greek banks. Higher tariffs and tax cuts in the US will likely have an inflationary impact and could mean that interest rates stay higher for longer, which should broadly benefit the earnings of the banking sector.

Copper is an area where we believe there is an attractive supply-demand backdrop, where AI adoption and the shift towards electrification is a strong demand driver. The electrification of the automotive fleet and the higher grid spending that is being driven by datacentres could add around seven million tons of incremental copper demand to a 25m tonne demand market by the end of the decade, which is met with a very muted backdrop for supply - all pointing to a very constructive backdrop for prices in the years ahead.

Why quality matters

The emerging market universe is home to many high-quality companies with strong fundamentals that possess the resilience to reward investors across a range of macro and market conditions. In this context, our approach remains anchored on investing in attractively valued, well-managed companies that can generate sustainable and superior return on assets. Buying high-quality businesses that generate superior through-cycle returns can provide a margin of safety in what is typically a higher volatility asset class.

Screening for quality metrics such as high return on assets is relatively straightforward. However, judging whether these returns can continue in the future is more difficult. This is where both our portfolio management and research teams seek to add value through rigorous analysis and assessment of why returns are attractive and whether they can be sustained.

Looking ahead

While positioning in China has remained a headwind amid a volatile backdrop for investing in the country, the portfolio has recently benefited from broad-based drivers including Asian technology hardware names, fintechs in Kazakhstan, and structural growth stories in India.

The strategy has outperformed the index over its 15-year tenure and looking ahead, we see robust total shareholder return potential at the portfolio level (which we forecast using an estimate of cross-cycle earnings power and an appropriate multiple plus the dividend yield). We see particular opportunities in the financials space, as well as in consumer-facing sectors in China, which is where we see the stimulus measures and the policies taken by the government having the largest benefit.

These sector and varied country positions have benefitted from our team incorporating a more diverse range of top-down insights, drawing on geopolitical analysts as well as Fidelity’s sovereign debt and global macro teams to inform our bottom-up views. While country positioning has always been monitored closely, country-specific bets have become more muted, while still ensuring active share remains high.

We believe the positioning shifts within the strategy have built a strong foundation for future returns. We remain confident that the portfolio is well-positioned to take advantage of the compelling long-term growth opportunities in emerging markets across a broad range of sectors and regions.

Past performance is not a guide to the future.

Source: Fidelity International, 31 December 2024. Basis: bid to bid with income reinvested in GBP, net of fees for W Acc share class. Nick Price strategy tenure since 1 July 2009 but figure above relates to launch of retail share class of the UK-domiciled Fidelity Emerging Markets Fund on 1 July 2010.

Important information 

Marketing communication. 

This material is for Investment Professionals only and should not be relied upon by private investors. 

Past performance is not a reliable indicator of future returns. Investors should note that the views expressed may no longer be current and may have already been acted upon. 

The value of investments and the income from them can go down as well as up so you may get back less than you invest. 

This fund invests in overseas markets and the value of investments can be affected by changes in currency exchange rates. This fund invests in emerging markets which can be more volatile than other more developed markets. This fund uses financial derivative instruments for investment purposes, which may expose the fund to a higher degree of risk and can cause investments to experience larger than average price fluctuations. This fund has, or is likely to have, high volatility owing to its portfolio composition or the portfolio management techniques. The fund does not offer any guarantee or protection with respect to return, capital preservation, stable net asset value or volatility. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for illustration purposes only. 

Please refer to the Prospectus and KID of the fund before making any final investment decisions. The investment which is promoted concerns the acquisition of units or shares in a fund and not in a given underlying asset owned by the fund. Complete information on risks can be found in the Prospectus. 

This information must not be reproduced or circulated without prior permission. This information does not constitute investment advice unless specifically agreed in a formal communication. Fidelity International refers to the group of companies which form the global investment management organisation that provides information on products and services in designated jurisdictions outside of North America. Fidelity, Fidelity International, the Fidelity International logo and F symbol are registered trademarks of FIL Limited.  

This communication is not directed at, and must not be acted upon by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required.  We recommend that you obtain detailed information before taking any investment decision. Investments should be made on the basis of the current prospectus and the KID (key information document) or KIID (key investor information document), as applicable. These documents, the current annual and semi-annual reports as well as information on investor rights are available in the languages and on the websites indicated below.  

Austria: Prospectus in English, KID and Complaints policy in German on www.fidelity.at. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).  

Belgium: Prospectus, KID and Complaints policy in French/Dutch on www.fidelity.be. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).  

Croatia: Prospectus in English, KID and Complaints policy in Croatian on www.fidelity.hr. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).  

Czech Republic: Prospectus and KID in English/Czech and Complaints policy in Czech on www.fidelity.cz. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).  

Denmark: Prospectus in English, KID in English/Danish and Complaints policy in Danish on www.fidelity.dk. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).   

Finland: Prospectus in English, KID in English/Finnish and Complaints policy in Finnish on www.fidelity. fi. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).  

France: Prospectus, KID and Complaints policy in French on www.fidelity.fr. This document is available in French upon request. If you do not wish to receive documents in English dedicated to Professional, please contact your Fidelity contact. Issued in France by FIL Gestion, authorised and supervised by the AMF (Autorité des Marchés Financiers) N°GP03-004, 21 Avenue Kléber, 75116 Paris.       

Germany: Prospectus in English, KID and Complaints policy in German on www.fidelity.de/anlegerinformationen, www.fidelity.de/beschwerdemanagement/ and www.fidelity.lu/complaints-handling-policy. Any performance disclosure is not compliant with German regulations regarding retail clients and must therefore not be handed out to these. Issued for German Wholesale clients by FIL Investments Services GmbH / for German Pension clients by FIL Finance Services GmbH (Kastanienhöhe 1, 61476 Kronberg im Taunus). Issued for German Institutional clients by FIL (Luxembourg) S.A., 2a, rue Albert Borschette BP 2174 L-1021 Luxembourg.  

Hungary: Prospectus in English, KID in English/Hungarian and Complaints policy in Hungarian on www.fidelity.co.hu. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).  

Ireland: Prospectus, KID and Complaints policy in English on www.fidelity.ie. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).  

Italy: Prospectus, KID and Complaints policy in Italian on www.fidelity.it. Information is also available in Italian at Consob. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).  

Liechtenstein: Prospectus, KID and Complaints policy in English/German on www.fidelity.li. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).   

Luxembourg: Prospectus and KID in English/French/German and Complaints policy in English on www.fidelity.lu. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).  

Malta: Prospectus, KID and Complaints policy in English on www.fidelity.com.mt and from BOV Asset Management Limited (which is licensed by the Malta Financial Services Authority). The Fund is promoted in Malta by BOV Asset Management Limited in terms of the EU UCITS Directive; the Investment Services Act, Chapter 370 of the Laws of Malta;  and the Investment Services Act (Marketing of UCITS) Regulation, Subsidiary Legislation 370.18 of the Laws of Malta. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).  

Netherlands: Prospectus, KID and Complaints policy in Dutch on www.fidelity.nl. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).   

Norway: Prospectus in English, KID in English/Norwegian and Complaints policy in Norwegian on www.fidelity.no. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).  

Poland: Prospectus, KID, Additional Information for Investors in English/Polish and Complaints policy in Polish on www.fidelity.pl and from the fund’s representative office in Poland.  This material does not constitute a recommendation within the meaning of the Regulation of the Polish Minister of Finance Regarding Information Constituting Recommendations Concerning Financial Instruments or Issuers Thereof dated October 19, 2005. No statements or representations made in this document are legally binding on Fidelity or the recipient and not constitute an offer within the meaning of the Polish Civil Code Act of 23 April 1964. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).  

Portugal: Prospectus in English, KID and Complaints policy in Portuguese on www.fidelity.pt. Fidelity Funds is registered with the CMVM and the legal documents can be obtained from locally authorised distributors. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).  

Romania: Prospectus in English, KID in English/Romanian and Complaints policy in Romanian on www.fidelity.ro. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).  

Slovakia: Prospectus in English, KID in English/Slovakian and Complaints policy in Slovakian on www.fidelity.sk. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).  

Spain: Prospectus and KID in English/Spanish and Complaints policy in Spanish on www.fondosfidelity.es. The distributing and depositary entities are, respectively, FIL (Luxembourg) S.A. and Brown Brothers Harriman (Luxembourg) S.C.A. Fidelity Funds and FAST are registered for marketing in Spain in the register of Foreign Collective Investment Undertakings of the CNMV under registration numbers 124 and 649 respectively, where detailed information on the local distributors can be obtained. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).  

Sweden: Prospectus in English, KID in English/Swedish and Complaints policy in Swedish on www.fidelity.se. Issued by FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier).  

Switzerland: Prospectus in English/ German/ French, KID in English/ German/French and Complaints policy  in German and English on www.fidelity.ch and from the representative and paying agent in Switzerland, BNP Paribas, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich. Fidelity undertakes the financial services of purchasing and/or selling financial instruments within the meaning of the Financial Services Act (""FinSA""). Fidelity is not required to assess the appropriateness and suitability under FinSA. The information provided constitutes an advertisement. Issued by FIL Investment Switzerland AG.  

UK: The Key Investor Information Document (KIID) is available in English and can be obtained from our website at www.fidelityinternational.com. The Prospectus may also be obtained from Fidelity. Issued by FIL Pensions Management. Authorised and regulated by the Financial Conduct Authority.