Watch video

Transcript is available below.

Stewart McAndie: Good morning, good afternoon. I'm Stewart McAndie, a member of the Ashmore London-based client team. Welcome and thank you for joining today's webinar, “EM Equity: ingredients for the next EM upcycle”. 

Today's speakers are Dhiren Shah, Lead Portfolio Manager of Ashmore's Emerging Market All Cap Equity Fund and Gustavo Medeiros, Ashmore’s Head of Research. They'll be discussing and outlining their views on a number of aspects related to the compelling opportunity that investing in Emerging Market (EM) equity represents. I'll start by handing over to Gustavo.

Gustavo Medeiros: Thanks Stewart, it's a pleasure to be here, especially with special guest Dhiren. I'm looking forward to another dynamic discussion. To begin, let me set the scene in terms of notable global macroeconomic developments. 

I think it's worthwhile remembering, particularly after we're having the World Economic Outlook delivered from Marrakesh in Morocco, that in global macro terms, the first important point is that EM GDP growth has been improving and increasing in 2023 versus 2022. And the gap between EM to DM GDP growth is likely to remain elevated in 2024. 

That in the past has led to an increased performance in EM assets in relation to Developed Market (DM) assets, and EM growth typically accelerates, improves and outperforms DM once EM GDP growth is surprising to the upside, sometimes with a little bit of a lag, perhaps this time is not going to be different. 

China's economy is improving, albeit not as fast as expected, but Latin American (LatAm) and Eastern Europe growth are both surprising to the upside versus expectations at the beginning of the year, despite that both of these regions had a much more hawkish monetary policy stance over the last few years. Actually, better fiscal and monetary policy mix in the developed world is another important element underpinning the better EM environment, as EM countries did not experiment with ‘helicopter money’. Several EM countries are actually benefiting significantly from much faster disinflation and from anchoring inflation back to their targets, so much so that several countries are already easing monetary policy including Brazil, Chile, Peru, Poland, China and Vietnam, among others. 

Finally, I think that on top of this better growth environment and better macroeconomic management, in our view, the US dollar is likely to have peaked last year. Despite the fact that just last quarter US Treasuries moved to new highs since 2007, the dollar index was still about 6% below the peak of 2022. So, if we don't have a new high on the dollar index this year, it's very likely we have entered a sustainable period of time in which the dollar should be weakening on a multi-year basis, which should also be another very important ingredient for Emerging Markets. 

So with that, let's start. Dhiren, what does diverging monetary policy cycles mean for equity markets looking forward to 2024?

Dhiren Shah: Thank you, Gustavo. So if we first just think about it, one, we've got the US cycle and the transmission of that policy into the economy is obviously going to take multiple months and years to filter through. So those will be ongoing headwinds and that's something we're very conscious of in terms of the pace of US growth and whether we have that recession or not. 

And then we look on the flip side of what's happening in EM, and it's obviously a deep broad universe, and so we've got clear monetary easing in China, which I'm sure we're going to have more questions on. And as you've cut rates and as that curve gradually filters through the economy, eventually the transmission effect will lead to that higher economic growth.

Typically in most markets as you begin to cut and as you go through the cutting cycle, it is quite helpful in terms of equity and market performance. Then you need that to filter through into economic growth and earnings, and that leads to that ongoing cycle which can last for many years. You've had the rate cutting cycle start in LatAm, as you alluded to. So that's been helpful and we expect that to be an ongoing process because inflation's very low there. In other markets, it's a bit more mixed.

Once we get confirmation that we've passed our last hike in the US, I think that will give confidence to a number of EM central banks to actually start cutting. I think this will be very, very supportive. As we go into next year, the set-up in terms of the monetary cycle should be very supportive for EM, conscious obviously of the pace of US growth. 

The other thing to consider is just the flow of money. If you're a domestic investor or a global investor thinking about allocating, obviously you can invest in cash or you can invest in the earnings yield and equities. That spread  between the earnings yield versus bond yield looks quite challenged in terms of the implied equity risk from the US. But actually, looking at EM, it's at very, very attractive levels now. So, I think as you get a confirmation of the cuts, you get that wall of money going into equity markets because the earning yield is very cheap, so we know that EM equities are cheapened and then that will be an additional catalyst going into next year.

Gustavo Medeiros: Yes, two interesting points. First, we've got some US Federal Reserve (Fed) speakers coming out the last couple of days that were a bit more hawkish suggesting that most likely the cycle is over. So that's goes in line with what you're saying. The other interesting element is that we’ve done an exercise on the gap between the equity earnings yield versus 10-year government bonds is how even some high beta or high yielding LatAm countries had actually a relatively positive earnings yield. That was very surprising to me and is underpinning that theme that you mentioned. 

Now, moving to China, the elephant in the room. Economic growth improved significantly in Q1 this year, but then decelerated compared to expectations in particular in Q2, when it was pretty weak. We saw some signs of acceleration again in August, but not conclusive. How do you see it going forward?

Dhiren Shah: I think it's just worth going back in terms of some of the things that have happened more recently, and how that frames our thinking. Where we are today in China is a function of three policy mistakes, one on regulation, one on Covid zero, one on real estate. And so each of those respectively, one impacted business confidence, the second impacted consumer confidence, and the third is obviously real estate, which is the largest part of the economy. 

There's been some recognition, and there's been plenty of policy, in terms of the unwinding of some of these errors. We feel that the measures taken to improve business confidence, improve consumer confidence and the macro around that in terms of excess deposits and so on are very, very strong. But they take time and you've got to climb that wall of worry as things gradually improve. 

However, on the real estate side, there has been a policy change, but it still feels quite challenging. And so the conviction we have on that normalising and being a positive contributor to the economy, I think that's going to be an ongoing challenge. But the flip side of that, it means that there'll be ongoing policy support. We've just seen today an announcement of additional stimulus coming through. So I think that will be helpful. 

I think what this means is China's economy will carry on growing because as business investment recovers, consumer confidence recovers. They haven't had that big consumption boom yet, so it won't be a strong recovery. But from an equity market perspective what we need is growth and we need consumer confidence, business confidence to rise and that provides a set-up for the markets to perform well.

Gustavo Medeiros: Very good. It definitely feels like the equity market discounts a worse growth profile than we think is likely to take place. Talking about it, China’s stock market remains relatively weak. Does it lead to any opportunities here?

Dhiren Shah: Yeah, it does but I think as I mentioned before, you've got to be quite selective because there are parts of the economy which are still struggling given real estate, and the big value chain associated with that.

So, there are parts of the market where we don't have conviction, and those are obviously zero weight in our portfolio, as that’s obviously how we invest. But then there are areas where there are tremendous opportunities. And with the dislocations you've had over the last year, China's been quite disliked and that's telling in the performance as well as the valuations that we all see. 

To give you a sense of some of the opportunities we see, so first of all, it's in technology. So over two years ago we had regulation in terms of internet platforms. It's been a cycle of overconfidence by the government, and then the policies changed completely over the last year, and now they are very supportive. Opportunities are in gaming, where licenses are normal. One of the opportunities we've got is in a leading music platform, and half the market capitalisation is in net cash. They're very profitable, they're four times bigger than anyone else. Really good long-term growth and you can buy them at really good valuations. So those are the parts that we like, but also, it is about being selective. E-commerce is challenged, there's a lot of competition, so you've got to pick where you buy, but there are some fantastic opportunities there. 

Another area would be consumption. We haven't had that consumption boom in China that we've had elsewhere in the world. The macro data tells you very clearly there are absolutely large stockpiles of cash of deposits that households have, but they've had limited confidence given what's been going on in the economy. We think this will be spent as confidence is gradually rebuilt. So there's obviously great stocks in sportswear and so on, but there's a collection of opportunities within China consumption which we expect to play out into the next year. 

Another area would be high-end manufacturing. China is where it is today because you've got a collection of corporates which have taken manufacturing share, and that continues. They continue to get up the value chain. It can be producing relays that go into electric vehicles. It can be producing specialised pharmaceutical goods which go into the new weight loss drugs that we're seeing, but China corporations at a micro level continue to take share and increasingly in more and more high value areas. So there are specific stocks where we find valuations that are at very attractive levels, and these companies are all growing at 15-20% per year. They've just got cheaper. 

So the investment thesis, the fundamentals remain very strong and other areas around renewables, the electricity networks. And so a lot of the solar photovoltaic (PV) value chain is highly competitive. We don't own it for that reason, but if you look with a different lens, to enable PV to take share from coal – which is the largest part of the grid network – you need a very strong electricity network. China has some great companies there who benefit from this ongoing capacity increase in grid networks. And incidentally, they're also taking share globally as well. So, we find a lot of great opportunities there. But going back to what we do, it's about being quite selective and it's not just a broad aggregate, high level theme.

Gustavo Medeiros: Yeah, very good. Very interesting opportunities. Well, the EV value chain is obviously growing very fast, which gives an idea of the massive opportunity in the energy transition industries in China. Today, there was an article from Bloomberg saying China is considering to invest or increase the fiscal deficit by a trillion Renminbi, and it particularly mentioned spending in infrastructure that is sustainable in nature. So, that gives you an idea, if there is to be a fiscal expansion as a result of countercyclical measures similar to 2009, it's to be in these new areas, high tech, manufacturing, resource sustainability and energy transition. I think those are very interesting areas indeed also from a top-down perspective. Now, let's move a little bit, in terms of Latin America, I mentioned that GDP surprised massively to the upside in 2023 compared with what people expected initially, obviously benefiting from higher commodity prices, and nearshoring trends in the case of Mexico. How does that translate to earnings specifically, Dhiren?

Dhiren Shah: If you think about the commodity upcycle from oil, soybeans, copper, lithium and so on, LatAm is blessed with that. And as you said, that's led to some of the macro upcycle. I think there's a need to be selective once again. There are countries which have moderate growth. Peru's struggling with El Niño, political instability, You've got to be quite selective in terms of which countries. So the improved macro has clearly helped. But from a bottom-up perspective, the opportunities are not consistent everywhere. 

One of the markets where we've got a particular positive view is Brazil. That view has evolved and changed as the facts have changed over the last year. First of all, we’ve seen how inflation will be declining and how that's now leading to lower rates and without the ongoing tailwind of the market. And obviously, rates are very, very high, some of them amongst the highest real rates in the world. But then you also have reforms. Brazil has one of the most complex tax systems globally in the world. It's one of the most awful things, if you're a company there to handle the tax system. So, their reforms are in the process of being passed, which would be a significant supply side reform and will help a number of the companies in terms of cutting costs and so on, but also just raising trend GDP. 

So you have falling rates, better growth, some fiscal reforms within the process being voted on. And you have some really, really cheap valuations. Obviously, the commodity cycle has been very helpful, but that coincides with very cheap valuations. There is a bit of short-term uncertainty in the markets right now about how the tax accounts get managed, and how that might increase tax rates of specific companies, but if you step back and look at the next few years, you've got a collection of businesses –  from wealth management platforms, enterprise resource planning (ERP) software, rental, fashion, retail, so really high quality companies. They're exactly the type of companies we're looking for, where we see them still growing 10%-20% per year, but now available and at significantly cheaper valuations. Once we clear up this short-term noise, the set-up for that market, and the companies that we can find there, is very, very compelling for us.

Gustavo Medeiros: Excellent, what about Mexico? It's a great opportunity obviously when it comes to nearshoring, but it's never straightforward, right? President Andrés Manuel López Obrador, known as AMLO, his policies seems to be deteriorating at the margin. What do you think about the challenges and the opportunities there?

Dhiren Shah: Mexico is never straightforward and there are always ups and downs, especially under the AMLO administration. The macro is very solid: low leverage, low debt-to-GDP, and it has obviously gone for one or two decades of more average or more moderate GDP growth. What we're now considering is, does Mexico's trend GDP growth increase because of nearshoring? Does it go from 1% to 2%, or closer to 3% to 3.5%? The last couple of years have obviously been very strong and the potential for this is to be very, very significant. 

This is happening despite an unhelpful political environment, with elections in the middle of next year. From what we see, what we read, what we understand when we visit, is that both candidates should be more market friendly. And so the embedded high risk premia embedded to Mexico because of regulation risk, has the potential to be taken away. Markets are cheap partly because of that additional risk premium. So I think on balance, we are looking for a more constructive political environment in the next five years compared to what we've had. That, combined with nearshoring where all the indications we have from speaking to companies in Taiwan, in China, wherever they might be, are considering opening plants in Mexico. So this, we think will be an ongoing tailwind to have high GDP growth, and you've got the starting point of reasonable valuations. The one thing we are mindful of is the US cycle in terms of macro. Mexico is obviously heavily linked to the US economy. And while this bigger long-term trend can play out over five to 10 years, if the US goes into recession, that likely takes Mexico at least to a slower pace of economic growth. Whether it's a recession or not, we'll have to see. But when you think about the long term, and the quality of the companies you find there, so we find a lot of interesting bottom-up ideas, that's a market we're very much in favour of.

Gustavo Medeiros: Okay, very good. Let's move to another large country, India, another country which has an impressive list of reforms implemented over the last decade, supporting very strong economic performance over the last years. It's probably going to be one of the fastest growing economies in the world, or most likely to remain the fastest growing economy in the world among the majors. But the stock markets seem to trade at a premium when you look at high level multiples. What are the opportunities there, Dhiren?

Dhiren Shah: For many years, we’ve had a very constructive view on the opportunities in India. As a consequence, we've generally been overweight India. But actually, we've found, and you've alluded to, that over the last 12 months, valuations have slightly got ahead of themselves. 

We are big believers in buying quality companies with reasonable growth, without valuation discipline you pay for those future returns upfront. It doesn't necessarily work on a six-month view, but two to three years out, having that discipline is very, very important. So over the last six to 12 months as stocks have performed well, we've actually been reducing our allocations to India. That means we're now underweight India. 

It's a deep market, there are some fantastic companies there, so you could always find opportunities, particularly in the financial space of banks or there's some exchanges, there's some platforms, there's some great holdings we have there, but in general, we are less constructive. There's nothing wrong with the macro as you said, the macro is great, but just from a stock market perspective you're paying a bit more on an aggregate level. There are a collection of companies that are trading 40 times, 50 times earnings. You look at the mid cap space where there's been a lot of retail speculation recently. I think you've got to be very careful there, and there are just better opportunities in other parts of EM.

Gustavo Medeiros: Very good, Let's change tack towards more thematic views. Obviously year-to-date, we’ve had artificial intelligence (AI) fuelling the 'Magnificent seven' performance, which explains almost the entire positive performance of global stocks year-to-date, that's been very, very topical. How are EM companies impacted by AI?

Dhiren Shah: Significantly, one is the impact and the opportunity. I'll go through part of the opportunity, but when we think about this is obviously what's happening in AI is very significant. It will transform many industries. And so at every company, we're going to sit there and appraise: are they disrupted, will they be a disruptor? Will this help them in terms of taking costs out, productivity gains, etc? So, if you're a company with scale, if you're a company with obviously an excellent management team that fits the profile of what we're doing, one of the questions we ask is how are you thinking about these things? There's a lot of companies in that process of implementing their AI strategies as it's still quite a nascent technology, but I think as you go into next year and enter in into 2025, you're going to see either the monetisation or the kind of productivity gains, which will be very, very significant over time. 

The part that everyone's been thinking about is the immediate supply chain going into AMD, into NVIDIA, obviously the one that everyone knows. And where does that value chain sit? A lot of that value chain sits, and many EM investors realise, it's in South Korea and Taiwan. So a lot of the hardware, a lot of the semiconductors critical to making these graphics processing units (GPUs), sits there. Some of the stocks have performed very well. Obviously, you've got to be selective there because some of them are not high quality and so they've done well now, but some of them, that will be competed away over time. But this is a multi-year theme and so there's lots and lots of different companies who are investing in GPUs and AI. And so, this will remain an area of meaningful growth.

We find a lot of opportunities within that hardware space because these are obviously globally high quality companies. And then the other one is when we go into the large language models, and so if you look in just the US, it's Open AI and there's lots of other alternatives which are now emerging. But there are companies in EM which are building their own models, and they've got the scale, they've got the datasets. What do you need for a large language model to work? It's obviously the money to invest and you need the data. That sits with a number of companies, and some of the Chinese companies or leaders in this space, they're building their own models and this will be a very significant opportunity that the market's not even thinking about right now. So there are a lot of opportunities in this space and a lot of different ways that we're playing it.

Gustavo Medeiros: They also have their own closed ecosystem, which is huge and very, very deep. So that brings us to one of my favourite questions because very often, it feeds from micro to macro in terms of where we are in the semiconductor cycle, which typically is a leading for global manufacturing.

Dhiren Shah: For many years, we’ve had a positive constructive view on semiconductors as it's become strategic. You'd like to say semiconductors is the new world, but oil has obviously got some key attributes to itself, especially in today's markets. 

We had a downturn that started after the significant overbuild or over inventory stock post-Covid. So we own these great companies, but as we see that downturn, we lightened up or exited some positions just 12 to 18 months ago. It's been one of the deepest downturns we had over the last 15, 20 years, a very significant down cycle. Part of it is because of it was a meaningful upcycle, so it tends to rhyme on some level. 

But where we are today, inventories are being depleted and increasingly day by day over the last few weeks, seeing increased signs the cycle is about to turn. So yes, inventories are still high, but they are now getting to a level where we're getting rush orders and so on. So we're seeing those green shoots. We added back to a lot of our exposure three to six months ago. It's just the nature of what we do. So we own these companies. There's nothing broken in the long-term earnings power, it's just an inventory down cycle. So while these stocks were down 50% to 60%, that presented a good opportunity to us. That conviction is rising as we are seeing more and more data points of that. It's obviously been helped obviously by AI as well, and that's just increased hardware spend in general. So as we go into next year, that should be helpful to the economies of Korea and Taiwan, but to the point you mentioned, this might be more indicative of a wider global macro cycle of restocking, destocking inventory levels, and so on.

Gustavo Medeiros: Interesting, very good, thank you. And any other winners or losers from AI apart from hardware and semiconductors?

Dhiren Shah: Some of the big internet platforms, I think. To give another example, if you're an ERP software company, one of your largest costs is your people, your coders. So the productivity of these engineers goes up significantly. That means your costs go down quite meaningfully over time. So, there are a collection of individual stocks which will benefit on the margin side over the next two, three years, which the market will kind of grow to appreciate as these models get rolled out. In terms of losers, if you're an IT services company, you bill by time and material, and so the amount you can bill potentially will be challenged in the medium term, because your engineers are that much more productive. So there could be a short-term increase in demand as companies incorporate, but I think that's an area to be relatively cautious on as they potentially do lose out from the new technology.

Gustavo Medeiros: Okay, very good. Stewart, do have any questions from the audience?

Stewart McAndie: We do have a couple of questions actually. The first one is asking specifically about the Middle East. What do the tragic events in Israel over the weekend mean for the Middle East?

Dhiren Shah: It's obviously complex and things are in flux. But it naturally just increases the risk premia within the Middle East, at a moment when parts of the Middle East, such as Saudi Arabia and the United Arab Emirates (UAE), have undertaken significant reforms and business and investment confidence is high. I think it makes sense to be a little bit more cautious there until we know how this plays out over the coming months and quarters, however long it might take. 

Gustavo Medeiros: I think that that's a very fair point. First, it's extremely complex and it's hard to see three, or six months down the road how things will be as a result of the Hamas terrorist attack and the declaration of war by Israel. There are a few things that you can think of, since the Russian invasion of Ukraine, from a macro term, both in bonds and equity perspective, people started thinking about the Gulf countries and the Gulf Cooperation Council (GCC) as safe havens for investment, because there are large energy producers, the macro and the micros are aligning nicely as you said, and there are minimal geopolitical risks. Now that's changed, so you start to have to incorporate a more risk premium. 

Then we can identify some countries that are more exposed to that. For example, Qatar potentially is more exposed than the UAE given their links with Iran, Hezbollah, etc. Not direct links perhaps, but there are some perceived links and then therefore, that could lead to some questioning there. I think investors might be asking for a higher risk premium in areas where you have a higher risk of contagion. 

Obviously, the big risk as we've highlighted on this week's research is whether it remains a small local conflict between Israel, and Palestine and Hamas or if it broadens out. Small local conflicts have historically had very little impact both in oil markets and more broadly in global markets. But if we're talking about a conflict between Israel and Iran, either direct or via proxy, then this is a completely different situation that would probably lead to higher energy prices and higher geopolitical risk premium across the region.

Stewart McAndie: Thank you. Another question: in what countries or areas of the world do we see long-term secular demographic tailwinds? And are we focusing on companies to serve those domestic populations or export of their goods or services?

Dhiren Shah: When you think about demographic tailwinds, I think the one that sticks out is India, but there are a number of other countries when you think about demographics and the middle class. 

You can have a population with very attractive demographics, but if they don't have the purchasing power, that doesn't really mean anything from a company or a stock perspective. So, you need to have the demographics combined with the middle class wealth creation that gives individuals the ability to spend. There are obviously a lot of countries which have got that middle class and that'll grow and develop., I talked about Mexico, which obviously has got a potential significant middle class development. Brazil's had it, but that could be ongoing. When we think about our portfolios, obviously there's the Middle East, and so on. So there's a vast number of individual countries that have the demographics combined with the GDP, which creates that wealth creation, which enables the middle class to consume and that benefits the companies we're investing in. So our portfolios benefit from a significant amount of domestic consumption as well as from exporters, it’s a blended, diversified portfolio by design. We have broad categories, such as one-third in consumption, we have tech platforms, we have financial empowerment, energy transition, exporters, and so on. So there's a number of different themes that we have exposure to.

Gustavo Medeiros: Just to add to that, it's a complex element because it's not only population growth, but now immigration as well. In Indonesia, massive population growth. Immigration will probably benefit. Population growth and immigration benefited the GCCs as Dhiren mentioned. I'm going to get a controversial here, because most people think about China as massively negative in terms of demographics, but China still has less than 70% of their population living in cities. And most middle income countries that have emerged to become high income countries managed to get a much higher level threshold for urbanisation. So as China moves up the technology value chain, which is already happening, as Dhiren mentioned, a higher degree of urbanisation might be necessary. 

Again, you might have declining population, but if the urban population is increasing significantly, that actually could lead to interesting investment opportunities. And just as a comparison that I like to make, Mongolia’s urbanisation rates in the mid ‘70s, much less developed country, much poorer than China. Brazil's urbanisation rates in the mid '80s. So there is quite a lot of room that China can actually compensate for some of these perceived headwinds on the back of population declining.

Stewart McAndie: Thank you, so sticking with China, there's another question on China specific to US export controls and tariffs and how's that affecting investments in China? 

Dhiren Shah: This is obviously the complex geopolitical environment we've had over the last couple of years. From us, and from an equity investment perspective, it just means you've got to be quite cautious. The areas that have been targeted for export controls, whether it's been in the semiconductor space, primarily concerns around how they'll be used in defence, in general, these aren't the stocks we are looking for. Because when we are looking for world-beating companies within semiconductors, for us, those sit in Korea and Taiwan rather than China. China's been playing catch-up, but I think the bar there is just very high. 

So, if there's an area that we think could potentially come under export controls, we just steer away. In terms of tariffs, there are sectors such as solar goods and so on that have got import tariffs. Obviously, vast swathes of China's goods have got import tariffs, but China still remains obviously hugely competitive despite those tariffs. I think you've just got to be very selective there and think about what are the economics of the business, what are their cost structures, where can they grow? And increasingly, obviously there's other EMs that Chinese companies export to, and they export to Europe. And the specific niches that are able to take share regardless, so I think it becomes case by case.

Gustavo Medeiros: And just very quickly on the top level, it does seem like the recent measures have been in the direction of narrowing the universe of companies and narrowing how deep it goes within the semiconductor sector, even within China. So I think that there is a willingness of finding an equilibrium there, a new balance between the US and China to collaborate in areas that are important and necessary, such as the energy transition. But it's something where you always have to be a little bit cynical and a little bit conservative given the anti-China sentiment in the US and the anti-US sentiment in China.

Stewart McAndie: Focusing still on the domestic play, the all cap nature of the fund leads you to invest in small companies, and there's a question specific to that. How are you seeing opportunities there and how are you using small cap at this stage of the cycle?

Dhiren Shah: It's one of our strengths, it's an output of the process. We look for company-specific characteristics, attributes and strengths wherever they are, regardless of sector, country or cap profile, obviously meeting minimum criteria and liquidity. We find a lot of companies in that small/mid cap space. We are typically, 10 to 5% overweight small/mid-caps over the cycle, but when you look at our tracking error it's not a big part of the risk, but it's obviously something that's important and relevant within what we do. 

The opportunities remain strong, so this is unchanged. The beauty of the asset class is it's obviously very broad, very deep, and the opportunities can be either in any number of areas from small companies and part of the semiconductor value chain. In Taiwan, we hold some companies with a 40% global market share, in the small specific niche testing part. It can be in China, in terms of one of the exporters focusing on specific resins that go into electric vehicles and into particular pharmaceutical grids. So there are lots and lots of opportunities, both domestic and export-orientated, and we continue to invest in these stocks. And as our process dictates, if they underperform, we add more. And obviously, when they do perform well, we'll take profits.

Gustavo Medeiros: Sorry to keep on complementing, but I think it's an important point. I think most global investors would be worried that small caps have been underperforming the mega caps particularly if this question is coming from the US. I do think that looking forward, if I'm right about one of my themes that I've been highlighting for many years now, reverse of inequality, the small caps should be in favour as the larger mega caps face more taxation. Small companies could actually benefit from these inequality reversal programmes. 

But in Emerging Markets, we have a very different story. Over the last three years, small caps have been outperforming and it's up close to 25% to 26%. Whereas the main EM index is down over the last three years in outright terms because of the poor performance of China. And adding up both of these macro factors and the opportunities that you have in terms of diversification and broader opportunities as Dhiren mentioned, I think is very attractive.

Dhiren Shah: One thing to add as well is when you think about the liquidity cycle, as we started on, when rates are being cut, domestic investors rates are coming down, there's obviously a greater tendency for them to invest in small/mid-caps. And so that cycle, we almost started on thinking about as rates get cut, what does that mean? I think that's definitely a supportive, conducive environment for small/mid-caps to perform. It's just very good because we own some.

Stewart McAndie: Absolutely, when you say that markets have been down over the last three years, well the fund is up. We've seen returns of 3% to 4.5% annualised over one year, five years and since inception. So thank you very much Dhiren and Gustavo for your time today. Thank you all for joining us again for the Ashmore webinar discussion. If you have any other questions or would like any further information, please contact myself or your Ashmore representative. We'll be sending out a replay of this webinar to you for your convenience, and we'll also attach the presentation, which has a bit more detail on what Dhiren was saying in terms of the breakdown of the themes within the portfolio. This concludes today's webinar, thank you.