14 February 2024

UTILICO EMERGING MARKETS TRUST PLC

(LEI Number: 2138005TJMCWR2394O39)

Publication of monthly factsheet

The latest monthly factsheet for Utilico Emerging Markets Trust plc ("UEM" or the "Company") will shortly be available through the Company's website at:

https://www.uemtrust.co.uk/investor-relations/factsheet-archive

Monthly commentary

PERFORMANCE

UEM's NAV total return declined by 0.5% in January, outperforming the MSCI Emerging Markets total return Index ("MSCI") which fell 4.3% in Sterling terms in the month. Since 31 March 2023, UEM's NAV total return has increased by 9.1%, significantly better than the MSCI which declined by 2.2% in Sterling terms over the same period.

Global stock markets were mixed in January, as the continued downward trend in inflation led to the US Federal Reserve removing its tightening bias but pushing back on hopes of imminent rate cuts. The S&P 500 Index firmed by 1.6%, reflecting continued concentration of the Index into the "Mag 7" (Amazon, Apple, Google, etc). It was notable within this group that Tesla warned on slowing EV demand and intense competition from Chinese EV manufacturers. China exporting deflation and undercutting global rivals in targeted sectors is a developing trend worth watching.

In emerging markets, China continued to disappoint, with the Hang Seng Index plunging by 9.2% and the Shanghai Composite falling 6.3%. The month started badly with wealth manager Zhongzhi Enterprise Group, a major player in China's USD 3tr shadow banking sector, filing for bankruptcy due to its exposure to the weakening property market. Notwithstanding cuts by the Central Bank to the reserve requirement ratio, sentiment remains poor, reflected in manufacturing activity shrinking for the fourth straight month.

Elsewhere in Asia, the Sensex Index hit an all-time high during the month as the bull run in India continued, though profit-taking saw it end the month down 0.7%. Concerns of sticky inflation were partly allayed by January CPI easing to a 3-month low of 5.1% thanks to slowing food price rises. The Philippines PSEi Index and Vietnam's Ho Chi Minh Index delivered decent returns, both up 3.0% in January.

In Latam, the standout performance came from Argentina, whose volatile Merval Index soared by 35.6% on hopes of fiscal discipline from new President Milei. The Brazillian Bovespa Index was more subdued, retracing by 4.8% after a very strong run to an all-time high at the end of 2023. Interest rates in Brazil were cut by 50bps to 11.25%, though these are still significantly above inflation which is running at 4.5%. Elsewhere, Chile's IPSA declined by 3.4% and Mexico's Bolsa Index was flat.

In the currency markets, Sterling strengthened against most currencies, up 1.6% versus the Brazilian Real, 1.1% versus the Chinese Renminbi, and most notably 6.6% against the Chilean Peso following a surprise 100bps rate cut in Chile. Sterling was broadly flat against the US Dollar and the Indian Rupee.

PORTFOLIO

There were three changes to the top thirty holdings, with Telelink Business Services, China Datang Renewables and Sonatel making a reappearance. Whilst Engie Brasil and Vamos dropped out on relative performance, UEM's unlisted investment in CGN Capital Partners Infra Fund 3 more than halved following the receipt of c.USD 6m in initial proceeds from the sale of some of its wind and solar projects. This was pleasing to see.

UEM's holdings in India were the standout performers in January, with Gujarat State Petronet's ("GSPL") share price up 19.8% and Power Grid Corp of India up 9.6% over the month. UEM took advantage of the buoyant markets to reduce its position in GSPL by almost a third.

In China, performance reflected the wider market, with CITIC Telecom's share price falling by 14.9% on noise around the expiry and renewal process for its original Macau basic telephony concession. China Gas' share price declined by 7.4% and Datang Renewables by 6.1%. Elsewhere in Asia, KINX continued its strong run, up 7.1% over the month. 

In Latam, BVC completed its conversion into Holding Bursatil Regional, a holding company which originated from the merger of the Colombian, Chilean and Peruvian exchanges. The goal is to create a single end-to-end trading and settlement platform for all three markets, which is expected to drive increased trading flows and listings across the three markets. As a business that benefits significantly from operational leverage, the merger is expected to deliver margin expansion.

In line with the broader market, most of UEM's Brazilian shares retraced from end-December market highs, with Serena Energia declining by 4.6%, Alupar by 6.3%, and Orizon by 8.5%. But sector-specific drivers bolstered Santos and Ocean Wilsons, up 7.6% and 10.8% respectively on speculation of M&A activity in the ports sector and an improved outlook on volumes. Sabesp's share price was also up 4.8% on continued encouraging progress with the privatisation process.

In the CEE region, Inpost's share price was up 11.5% following its trading update showing volumes up 21% in Q4 2023 with improving conditions in its international markets. TTS's share price continued to appreciate, firming by 8.2% over the period.

Portfolio purchases amounted to £8.9m and realisations totalled £14.9m.

DEBT

UEM's debt decreased from £30.0m to £25.9m during the month, drawn as GBP 3.7m and EUR 26.0m.

OTHER

UEM's share price ended January at 228.50p, decreasing 0.2% over the month. The discount to NAV narrowed slightly to 14.5% from 14.7%. UEM bought back 1.0m shares at an average price of 229.69p in the month. This takes the total shares bought back in the ten months to 31 January 2024 to 8.8m, equivalent to 4.3% of the share capital as at 31 March 2023. 

Name of contact and telephone number for enquiries:

ICM Investment Management Limited                                 +44(0)1372 271486

Charles Jillings / Alastair Moreton

Montfort Communications

Gay Collins, Pippa Bailey                                                       +44(0)20 3770 7913

utilico@montfort.london