During November the fund outperformed the MSCI Emerging Markets index by 2.6%. This was driven entirely by stock selection while country allocation was neutral. The largest contributions came from Korea, UAE, Argentina and Taiwan. Our underweight position in India was a relative drag and China was a small negative contributor.
During the month we took some profits on positions in Korea and Taiwan, while allocating to smaller markets such as Peru and Poland.
Seasoned Emerging Market investors learn to expect the unexpected. Still, every now and then, there is an event that boggles the mind. South Korean President Yoon recently treated the world to just such a moment with his declaration of martial law in the country. While it was fairly obvious that this was largely based on fictional threats, it seemed to suggest that a prosperous, stable democracy such as South Korea was at risk of becoming a dictatorship overnight.
It quickly became clear that there was no plan and no support for such a move – Korean institutions proved resilient and President Yoon has now been impeached for his actions. Of course, the episode has hurt Korea’s credibility – as one member of our team quipped, “at least we now don’t have to worry about Korea being promoted out of the Emerging Markets index”. On the bright side, this test run for a coup showed a total lack of appetite for a return to dictatorship in the country. While Korean politics will remain messy, this has been demonstrated to be a highly unlikely outcome.
Almost certainly, President Yoon’s actions will be relegated to a bizarre footnote of history. To put it in perspective, aside from Yoon’s predecessor, all Korean presidents this century have ended up in jail. In this sense, the latest drama is not that unusual and doesn’t fundamentally change our views. As the opposition already controlled Parliament, Yoon’s removal will only have a modest impact on policy. Crucially, all political parties agree on pushing companies towards better governance – pity they are unable to set this example themselves.
We continue to believe that the bottom-up focus on better shareholder returns, coupled with still attractive valuations will eventually deliver in Korea. Recent events have grabbed headlines but not fundamentally changed the thesis. Perhaps 2025 will turn out to be a better year for the country’s markets.
