ICM Monthly Outlook - November 2023

Storm clouds gather, and gentle breezes become gusting winds. Hauling in the sail and setting down anchor is suddenly a tempting option, yet this decision will come at a cost. Greeting loved ones and the enjoyment of home comforts will have to wait. Like sailing a yacht, every investment decision comes with consequences. Deciding not to take a risk can avoid the cost of making a financial loss but will come at the opportunity cost of losing out on a potentially profitable opportunity. The investment manager's skill is to weigh these explicit and implicit risks or costs and decide which option offers the best, probability-weighted, expected outcome. There are no free shots, unlike the usual commentators in the business news media who offer an opinion one week only to offer a very different view the following week, seemingly free of consequences. Beware of any investment advice given without obvious skin in the game. The talking heads would have you believe, this time around, that bonds are crashing as yields surge, equities are overvalued, and economic peril lies ahead. Read on for our view...


Hear from our Deputy Portfolio Manager, Jacquline Broers, as she provides a market overview and a portfolio update on UEM's performance for October.

Investee Insight: Santos Brasil

Our Deputy Portfolio Manager, Jacqueline Broers, provides an update on one of UEM's top 30 investments, Santos Brasil. Santos operates and manages container terminals in ports of Brazil.

Country Insight: Chile

Latin America is a region well-known for its strong swings in both politics and economic cycles. Amid this backdrop, Chile has differentiated itself, exhibiting more stability and offering investors greater visibility when considering long-term prospects in the country. Unlike many of its neighbours, historically Chile has been known for its political and economic steadiness. With robust institutions and a commendable history of policy continuity, even amidst changes in political leadership, the nation traded at a premium compared to its peers in the region. Further enhancing its investment attractiveness, Chile has signed numerous free trade agreements and double taxation treaties with key markets, actively facilitating international business.

ICM Monthly Outlook - October 2023

JK Galbraith, the famous economist, once said, “The only function of economic forecasting is to make astrology look good”. Indeed, the one certainty about forecasting is that it will give you plenty to be humble about. It is fair to say that the ongoing strength of the US economy since the Federal Reserve embarked on its programme of tighter monetary policy has been underestimated by most market participants. Despite short-term volatility, we remain constructive on developed world equity markets in the medium to longer term. We believe the outlook for equities and other risk assets, in general, is improving. Forward indicators of the business cycle point to an improving economic outlook as we move through 2024 and into 2025, and this should further benefit corporate earnings. Of course, there are plenty of risks in the short term, such as the factors driving the recent spike in bond yields, the threat of a US Government shutdown, or a stronger US dollar. Still, looking further out, we believe we are in the early stages of an equity bull market, which will be supported by an economic environment of rising growth, peak interest rates and falling inflation.

September 2023 Factsheet Overview

Hear from our Deputy Portfolio Manager, Jonathan Groocock, as he provides a market overview and a portfolio update on UEM's performance for September.

Gujarat State Petronet Limited - deep value waiting to be unlocked

Gujarat State Petronet Limited is the dominant gas pipeline operator in Gujarat, India, with a 2,700km transmission network as well as a controlling stake in distribution operator Gujarat Gas (GGAS). GGAS has a 36,000km network serving 1.9m households as well as commercial and industrial clients. The transmission grid is critical infrastructure for the State, being the principal connection to Liquefied Natural Gas terminals through which gas is imported into India. The attraction of GSPL’s core business activities is predictable regulated cash flows from transmission operations combined with commercial growth potential from distribution. However, it is evident to us that there is deep value which is being overlooked by the market due to the nature of reporting and the peculiarities of the Indian market.

ICM Monthly Outlook - September 2023

After running hot for a couple of years, the US economy continues to decompress slowly like a kettle taken off the boil. While inflation is falling and the job market is declining, it is all happening relatively slowly. Economic momentum is declining, but this weakness does not appear to be accelerating, which is good news if we hope to avoid a meaningful recession. Indeed, this slowing momentum, engineered by tighter Federal Reserve policy, has the economy on a glide path to a soft landing and a targeted inflation rate of around 2%. We believe the probability of the US falling into recession is receding, and even if we have a recession, our view is that it will not be a deep or long-lasting recession. Of course, GDP growth will slow and will be weak for a few more quarters, but it is increasingly likely that GDP growth will post positive rather than negative quarterly numbers over the coming year.

August 2023 Factsheet Overview

Hear from our Senior Analyst, Mark Lebbell, as he provides a market overview and a portfolio update on UEM's performance for August.

July 2023 Factsheet

Hear from our Deputy Portfolio Manager, Jacqueline Broers, as she provides a market overview and a portfolio update on UEM's performance for July.

ICM Monthly Outlook - August 2023

Imagine driving a car in reverse gear along a mountainous, cliffside road while only looking out the rear-view mirror. Now imagine it’s not the rear-view mirror, but rather a video of the rear-view mirror which is already three months old. It’s a ridiculous scenario, yet this is how Elon Musk colourfully described how the Federal Reserve manages US interest rate policy. While the primary purpose of this hyperbole is presumably to garner a few laughs, it does contain a number of truths which perhaps explains why the Federal Reserve seems so out of touch with the current pulse of the business cycle. Firstly, it is true that the Federal Reserve is focused on backwards-looking rather than forward-looking indicators. Its dual mandate is focused on inflation and jobs data which are lagging indicators. Secondly, when the data used in those indicators arrives, it already tends to be several months old, which again militates against effective decision-making by the Federal Reserve.

Soaring data use and how UEM is positioned to benefit from this megatrend

UEM invests in companies providing the digital infrastructure which is at the forefront of delivering internet connectivity and digital functionality to consumers, governments and enterprises in emerging markets.

Trip update: Romania

Hear from our Deputy Portfolio Manager, Jacqueline Broers, as she provides an update from her trip to Romania where she visited the site of Transport Trade Services.

Globalisation, geopolitics, and emerging market investing in a multi-polar world

As the geopolitical landscape shifts, so too does the flow of trade and investment. For Emerging Markets investors such as Utilico Emerging Markets, understanding the potential implications of these flows will be crucial for successful long-term investing. The fallout from a multi-polar world is that governments and political blocs must re-evaluate existing relationships, and are pressured to “take sides”. All this has led to a significant change in foreign investment flows and trade policy, and the advent of “nearshoring” and “friendshoring” – manufacturing and sourcing components and raw materials from countries which are in geographic proximity, and allies with shared values.

ICM Monthly Outlook - July 2023

Contrary to consensus market opinion at the time, we stated in our monthly letter last December that we expected 2023 would be a good year for risk assets in general. Clearly, we are pleased with our call given how equity markets have performed in the first six months of the year. We remain constructive on risk assets such as equities and corporate bonds for the remainder of 2023 and especially as we go into 2024, given our view that the global liquidity cycle which has already started to turn. We expect this turn in global liquidity to be further boosted by the Federal Reserve Bank, by mid next year at the latest, however we maintain our view that in the short term to medium term it is better to adopt a more cautious view on US equities and risk assets in general.

Country Insight: China

Having endured some of the harshest lockdowns during the pandemic, China surprisingly pivoted away from its zero covid policy in January 2023. This unleashed enormous pent-up demand, evidenced by an economic rebound earlier this year. However, growth momentum has subsequently softened, prompting concerns about the longevity of China's growth story.

ICM Monthly Outlook - June 2023

Momentum is a measure of an object's motion and is determined by its mass and velocity. Let’s assume that the US economy is an ocean liner, and that the Federal Reserve’s monetary policy and level of interest rates is the force that is applied to slow or quicken the speed of this enormous ship. Even if the engines of the ocean liner are put into full reverse, its momentum, at first, will still push it forward. Of course, it will begin to slow, but it will take time for the entity to come to a complete standstill and even longer to move into reverse. The US economy works similarly with monetary policy and the level of interest rates as the engines that build or reduce momentum across the economy. This explains why the US economy, and certain components of that economy, such as the jobs market, can seem initially to defy the economic brakes applied by the Federal Reserve. Yet, it is inevitable that if the brakes are left applied, the economy will come to a complete standstill and, indeed, most likely will go into reverse if not lifted.

Orizon – a true emerging markets growth story

Orizon is Brazil's leader in waste management and operates fifteen sanitary landfill sites. Historically, landfill sites across the globe were relatively simple operations – receiving waste and storing it on site. But in today’s world of strict environmental legislation, these sites are sophisticated “ecopark” complexes which require specialised infrastructure to safely process waste. This includes sorting facilities to remove recyclable materials such as metals, plastics and cardboard; leachate collection and treatment; biogas extraction; and waste-to-energy services.

Country Insight: Brazil

With a population of over 214 million people, Brazil is the most populous country in Latin America, providing a large market for goods and services. Combined with abundant resource, a robust financial system, and sound regulatory frameworks, Brazil offers significant investment opportunities. Over the past decade, Brazil has undergone significant economic and political changes. After weathering the Global Financial Crisis in 2008 better than many other countries, Brazil was hailed as a poster child for economic growth and expected to become a rising global power. While the Brazilian market is known for its volatility, there are unique bottom-up investment opportunities that combine growth with resiliency, making them appealing options for investors looking for long-term returns. In this note, we explore three investment stories that demonstrate these characteristics despite the macro and political uncertainties.

Investee Insight: Orizon

Hear from our Deputy Portfolio Manager, Jon Groocock, as he discusses UEM's recent trip to Brazil where he visited the Orizon's Paulinia ecopark, a landfill site. Orizon Valorizacao de Residuos S.A. is one of UEM’s largest holdings.