Posted inNews

MIGO’s Greenwood: EM scepticism creates compelling valuation anomaly

Fund manager discusses emerging market opportunities in India, Vietnam, and Georgia

Emerging markets have been out of the spotlight for some time, with investor sentiment impacted by a wave of economic uncertainties. Nowhere has this pessimism been more evident than in regional powerhouse China, as the world’s second-largest economy continues to experience a muted recovery from its sharp Covid-related slowdown.

Aggressive interest rate increases from the US Federal Reserve over the past year have also elevated downside risks to emerging market growth, while many developing countries have also been forced to hike rates in response to rampant inflationary pressures. Meanwhile, the ongoing war in Ukraine is also dampening sentiment.

As a result of such ongoing uncertainties, many emerging markets are currently trading at appealing valuations. Below, we highlight three opportunities in both high-profile economies and frontier outposts.


India, which recently overtook China as the most populous country on earth, remains one of the fastest-growing economies in the world. Growth is expected to come in at 5.9% this year and at an average rate of 6.1% over the next five years. By 2030, it is likely to overtake Japan and Germany to become the world’s third-largest economy.

While India has faced challenges due to persistent interest rate hikes over the past year, activity is being driven by increases in public spending, a recovery in consumption, and the alleviation of supply chain bottlenecks. While the shadow economy is still a significant issue, the rise in digital payments and ongoing tax reform continue to improve the situation.

Even though the broader Indian market is currently richly valued versus emerging market peers, we see an opportunity to capitalise on the strong prospects of small and mid-cap companies via the India Capital Growth Fund (IGC). Despite its impressive share price performance, up 30.6% over the last 12 months to 29 September, the fund continues to trade at a discount of about 9%. The closed-ended structure of the fund enables the managers to invest in less liquid opportunities and take a long-term approach, unencumbered by flows. By investing in smaller, less known and under-researched companies, the investment team is often able to uncover more mispriced opportunities.

On the other end of the spectrum, JPMorgan Indian Investment Trust (JII), the largest Indian trust on the LSE in terms of market cap, offers exposure to the country’s largest companies. The trust continues to trade at a wide discount, currently at almost 20%, but the prospect of this narrowing is not its only appeal. The trust has a mechanism to make a tender offer for up to 25% of the company’s outstanding share capital at net asset value, should it fail to outperform its benchmark over a five-year period. The next such payout period ends in less than two years, so the lagging trust will either perform strongly from here or investors will receive a sizable distribution.


Even though Vietnam’s growth rate is set to slow from the 8% recorded last year, the country is still expected to record a solid expansion of 6.3% in 2023. The growing middle class, alongside ongoing urbanisation, is continuing to underpin robust growth. Vietnam is also benefiting from increased scepticism towards China, and the desire for multinationals to diversify supply chains and manufacturing bases away from China.

The Vietnamese market remains cheaper than its Asian peers, but it remains notoriously volatile due to the dominance of shorter-term retail investors. This means fundamentals and share prices can often become detached.

Over the past year, our investments in VinaCapital Vietnam Opportunity Fund (VOF) and Vietnam Enterprise Investments (VEIL) have experienced widening discounts despite good underlying performance at portfolio level. Both trusts recognise this situation and regularly buy back surplus shares. We expect increased demand, combined with reduced supply, will lead to a sharp narrowing of the discount.


Georgia has made significant progress over the past decade, with its GDP per capita increasing by 55% from 2011 to 2021. Despite an improved economic outlook in recent years, investor appetite for Georgia has been muted, with sentiment impacted further by Russia’s invasion of Ukraine last year – which stoked memories of the conflict between Russia and Georgia in 2008.

As a result of the Russian invasion of Ukraine, many highly skilled Russians, particularly IT professionals, have moved across the border to Georgia. This has given the economy a further recent boost. Nevertheless, with non-existent demand for Eastern European strategies in recent years, the country remains firmly out of the investor spotlight. While there may be no near-term catalyst for Georgia, the significant valuation mispricing is simply too compelling to overlook.

We have a position in the London-listed Georgia Capital (CGEO), which was spun out of Bank of Georgia after the combined entity became too large to manage at 16% of GDP. The portfolio has investments in various areas such as wine, motor insurance, education, renewable energy, water supply and its listed stake in the Bank of Georgia. With a current discount of 60% – this represents a major mispricing opportunity, given our optimism in the country’s internal dynamics.

This story first appeared on our sister publication, Portfolio Adviser

Part of the Mark Allen Group.