The fund rose 4.4% in October. South Korea remains the standout performer, and together with good returns from Taiwan made Technology the strongest performing sector.
Emerging market equities extended their strong run through the month, supported by a growing conviction that the Federal Reserve is moving to a sustained easing path which was furthered by the month-end policy rate and a decision to end quantitative tightening by December 2025.
The AI infrastructure capex cycle continues to grow, with South Korea being one of the clearest beneficiaries given the tight supply in high-end memory. This has triggered a near 40% upward revision in earnings expectations since January and goes a long way to explain the 70% rally in the Kospi. Despite this move, MSCI Korea still trades on just over 10 times next year’s consensus earnings – in line with its long-run average and a clear discount to the broader emerging markets index.
Further re-rating potential is coming from the “Value-up” reforms, with the administration agreeing to cut taxation of dividend income from 45% to 25% – a further improvement from the 35% proposed in July. Final legislation is still required but if enacted as proposed, the reform will further incentivise higher payout ratios and enhanced shareholder remuneration in 2026 from a broadening range of companies.
The same AI capex surge is increasingly spilling-over into the race to fund hyperscale data centres and related infrastructure. This is clearly evident in the credit markets with a wave of issuance in structured, covenant-lite bonds at tight spreads, distant maturities and structures reminiscent of the peak in previous cycles. While risk is likely being mispriced in the fixed income markets, it’s too early for it to have an impact on demand, but is something we need to monitor closely. At this stage we still see upside in earnings as near-term capacity is completely sold-out. At current DRAM spot prices, Samsung Electronics net profit would put the stock on a P/E multiple of 2x.
Elsewhere, October saw a sharp reversal in gold and precious metals, which retraced after an extraordinary intra-month rally but was still positive on the month. Central-bank accumulation continues whilst speculative excess has been somewhat tempered, which is healthy. Free cash flow generation within our portfolio holdings is very high at currently levels, but we have taken some profits on the way up to recycle into a cheaper South African miner, where we see very attractive longer-term value.
A striking feature of the current market remains the divergence between EM index weights and actual earnings delivery. China still constitutes around one-third of the benchmark yet is expected to contribute only 5% of aggregate earnings growth (but better than previous years). Next year estimates rise to 15% but are bettered by South Korea, India and Taiwan which together account approximately 80% of total growth with consensus moving up from high-single digits in 2025 to 17% in 2026.
Within that some of smaller countries such as South Africa, Indonesia and Mexico are estimated to be more in the twenty to thirty percent range. These countries also have less correlation to global markets and have some attractive value and yield opportunities, which we are recycling capital into.
