374. Emerging markets: riding the next dollar cycle

6 November 2025 (pre-recorded 13 October 2025)

Please be aware that the accuracy of artificial intelligence-generated transcripts, such as those utilised in our interviews, may fluctuate based on factors like audio quality, subject matter complexity, and individual speaker enunciation. Consequently, these transcripts are unlikely to achieve 100% accuracy. However, it is important to note that, at FundCalibre, we do not consider the correction of automatically-generated captions to be an effective or proportionate use of resources.

Given the inherent limitations of machine-generated transcription, we strongly advise against relying solely on this transcript when consuming our content. Instead, we encourage you to use the transcript in conjunction with the accompanying interview to ensure a more comprehensive and accurate understanding of the topic.

Please remember we’ve been discussing individual companies to bring investing to life for you. It’s not a recommendation to buy or sell. The fund may or may not still hold these companies at your time of listening.

[INTRODUCTION]

Staci West (SW): Welcome back to the Investing on the go podcast brought to you by FundCalibre. Emerging markets are entering a new chapter according to today’s guest, who shares more about opportunities across India, Korea, China and Brazil.

Chris Salih (CS): I’m Chris Salih and today we’re joined by John Citron, co-manager of the JPMorgan Emerging Markets Investment Trust. John, thank you very much for joining us today.

John Citron (JC): Thanks Chris, good to be here.

[INTERVIEW]

CS: Great. Let get straight into it because there’s a lot to get through. I guess the best place to sort of begin is with performance, I mean, emerging markets they’ve had a really good year basically, despite all of this Trump laden uncertainty we’ve seen in the world. I guess maybe just for the listeners, give us an insight into what’s been driving that performance in your eyes, is it all tied to the US dollar? Is it much more broader than that?

JC: I think it is broader than that but the US dollar is definitely very important for emerging markets as an asset class. So may maybe I can explain a bit at first why the dollar matters for emerging markets and then afterwards I can touch on some of the other drivers, which I think are also very important. So in terms of the dollar, look, I think you can think of the global financial system as having a core, which is the US and the US dollar, and then a periphery, which is kind of everything else and includes emerging markets. And when the core is doing well and there’s strong growth, a lot of confidence, money gets sucked into the core, and that creates problems for assets, which are more of the periphery, like emerging market equities.

One of those problems, I mean, firstly, there’s just less demand for things at the periphery when people want to be invested in the core, which means lower multiples. Secondly you get currency weakness because people, including in emerging markets, sell their local currencies to buy dollar assets. And that means even if you have strong business fundamentals, and we’ve seen this a lot over the past 10 years, you can have a business growing its earnings, but that doesn’t translate into investment returns because those aren’t, that earnings growth is offset by currency losses, which is unhelpful. Obviously, if currencies are strengthening it, it helps.

And then because you have this currency weakness, central banks have to raise interest rates in order to keep domestic currencies stable. So if you look at Brazil right now interest rates are 15% while domestic inflation’s only 5%. So that’s a 10% gap there. And usually you would expect real interest rates, the gap between nominal interest rates and inflation to be much, much smaller than that. But that’s all about defending the currency, and that’s a precious domestic demand. And so these are all kind of ways which a strong dollar tightens and makes things more difficult in emerging markets.

And right now we are seeing the beginning, we think of the end of that strong dollar cycle. And the clearest, I think, way to see it, or one way was when you had the liberation date tariff. Usually when you have a big uncertainty, you would’ve seen the dollar strengthen the dollars of safe haven assets, but on that day, the dollar weakened. And I think that was a sign that you’re starting to see this weakening of US exceptionalism and this start of a flow of money from the core to the periphery. And so that is very powerful for emerging markets because these dollar cycles can be quite long.

And if we are seeing gains in local currencies rather than losses, if we’re seeing central banks and emerging markets, lower interest rates rather than strengthen them, that can drive domestic demand and so on and so forth. So yeah, the dollar is really important and the dollar cycle’s gone a very long time, which gives us some hope. But there are other drivers beyond the dollar, and I’m sure we’ll talk about it later, but, you know, AI semiconductors in career in Taiwan, that’s the kind of bottom up story that’s been super powerful. You know, all the domestic growth you hear about in India, again, that’s a domestic story that’s not really anything to do with the dollar.

So we are not macro investors. We’re not trying to call a dollar cycle or invest behind it, but undoubtedly, if the dollar weakens the value of all emerging market assets goes up. And that can only be a good thing for us.

CS: Okay. I mean, you mentioned it there that you’re not macro investors. I mean, I think I saw a video with you a while back where you were asked to sum up your process and you sort of see, you said in one word quality, and if it was a bit more, it would be holding companies for as long as possible, ideally, sort of indefinitely. How easy is that to do investing in that part of the world, ie emerging markets versus developed world? Are there different characteristics that you look for or is it the same characteristics, but perhaps even at an earlier stage than maybe we see in developed markets?

JC: Yeah, I’m not sure if it’s easier or harder to have a kind of very long term focus strategy in emerging markets. I mean, the obvious reason why it makes more sense and was one of the reasons at the foundation of the strategy nearly three decades ago, is that trading costs are a bit higher in emerging markets. And so trading all the time will really eat away at your returns in your portfolio, much more so than in, say, the US which is a, you know, the costs of trading are far lower.

But I think, there’s a practical reason, but there’s also a philosophical reason. And that’s that we believe in compounding and we believe in quality. And as you say, if you believe in quality, then ideally you find moats that are so deep, they last a very long time. And Austin Forry has run this portfolio for 30 years. I’ve joined him in the more recent years. And for out those 30 years, there has been a low turnover. It’s been very consistent.

And I think what’s worth emphasising is that a bit sometimes in this industry, you hear certain things said often, a quality growth, low turnover. I think it’s something a lot of people say, but I think the data would show that the trust is a real outlier in terms of how this plays out in practice. So it’s not something we just say it’s something we really do. And if you look over the last decade or so, I would say the average turnover’s been around 10% or lower, meaning the average holding period is 10 years. And there are four holdings in the trust that have been there continuously since the 1990s, another five or six that have been held for 20 years plus. And we haven’t just held onto those investments for the sake of it. Or just through some kind of, you know, dogmatic philosophy we’ve held onto them because those businesses keep performing. They’ve adapted to the world around them, and the earnings growth story has remained intact. And for us, that’s always the most powerful thing.

CS: Okay. I mean, listeners can kind of gauge an idea of where this is coming from, but you sort of divide the portfolio into these four buckets, premium, quality, standard or challenge. I don’t think there’s anything in challenge at the moment, although it wasn’t when I looked a couple of months ago, but, you know, people can sort of see how they’re sort of ranked based on that. But maybe just give us an example in practice of how that works. Are you looking for different things from those companies within the premium bucket to the standard? Did you have more patience with one over another? How does that look in practice? In terms of investing?

JC: Yeah, possibly slightly spitting hairs, but I would say we split our universe into those four buckets. Yeah. Premium, quality, standard and challenged. And then obviously we are trying to construct a portfolio which is quite different to the overall EM universe. So for our portfolios, 85% is what we call premium or quality, those high quality names. And that’s very, very different to the benchmark or universe. Now, often the first question we get if we mention a number, like 85% is what about the other 15%? You know, should only be only these premium quality names. And I would say, where we own standard names, it’s all about names which we feel are on that transition to premium, more quality, but maybe we haven’t fully got the confidence to put the label on yet.

So quite a significant number of those standard holdings we have, three of them in fact are in Korea, and Korea is an interesting place. For a long time we had very few exactly value up. Yeah, we had very few companies at a quality or premium classification in the market because of governance issues, which historically have been quite difficult. But as you mentioned, there is this value up program being pushed by the governments and stock market regulators, which is all about improving corporate governance. And so we think there is a pathway for our Korean businesses to get better over time to improve on the governance side. And that would be to improve governance in businesses where the moats and the growth outlook and the cash returns on capital, the economics all looking quite good. So that’d be an example of where we would understand a businesses where we perceive that things could change in the future as compared to today. And then obviously most of what we own are these very long term compounders, which we feel have been and stay in this bucket of kind of deep motor businesses with good management teams.

CS: Okay. We sort of four questions in, but we haven’t got to China yet. We have to talk about China, I’m afraid, or it is a good way now, but you know, it’s been a bit depressing the last few years, but it’s been a bit brighter recently. Is that starting to be reflected in the portfolio?

JC: Yeah, look, China has had an amazing run this year from very depressed levels last year. And we’ve captured some of that in portfolios. You know, for example, longstanding and larger holding for us is Tencent, which is up 50% in the last 12 months. But I would say, you know, it is an area where we struggle in very strong bull markets as we’ve seen primarily because we typically are have a slightly lower weight in the market as compared to the index. And that reflects the fact that we do struggle to find well businesses that we would define as being of a high quality there for different reasons. Sometimes it’s governance reasons. Often it’s around the level of competitive intensity in the market or regulatory risk.

Now we’re always looking for new businesses in China. We have bought new businesses in China year to date and over the last 12 months. So it’s an area where we are continually looking for opportunity. But also is an area where I think you would, you should not expect us to be overweight. And so obviously very strong markets, we capture a significant amount of that, we get an appreciation in the value of the assets, which still are, you know, 20% plus of the portfolio. But we we’re not going to or we’re unlikely I would take to have a much larger position than that.

CS: And the other behemoth in the region is obviously India worst kept secret in the market, although it’s had a bit more challenging times recently. There’s been lots of legs in that. Corporate recovery is the next big theme infrastructure or is there more to it in terms of where you are investing at the moment?

JC: Yeah, I think India is a broad market, and that’s one of the kind of pleasures of investing there and visiting there is that there’s lots of interesting parts in the domestic economy. But obviously infrastructure is key because just from a development economic kind of perspective in order to reach potential for any economy, you do need infrastructure as an enabler. And our portfolio certainly has exposure there. We own a business called Supreme Industries you know, perhaps not the core of heavy infrastructure, but it makes plastic pipes, which is a very high return category and it certainly benefits from all the construction projects that are happening. It’s a business we’ve owned for 12 years and is kind of one of those amazing family run operations with strong growth that you really do only find in India, I think.

But yeah, in terms of infrastructure, yes, it is one thing, but I mean, there are other there are many other parts of the economy. You have still a good consumer story with a lot of under penetration in many categories and strong pricing powers from, from various consumer goods companies. And we own several businesses in that space. Credit penetration, the financial system in India remains a very nascent story still even after kind of many years of long growth. And again, we own several banks and other financial assets in India, which we think can benefit from that.

India’s also well positioned for, yes, a kind of buzzword in a way. But for AI and everything that’s going on there, we’ve seen several announcements of gigawatt plus data centres, both from domestic companies and also from from international investors, like alphabet, Google. I think there’s also a statistic, which is that India has either the most or the second most queries into Chat GPT in terms of token generation because it really does have this very unusual scale of software industry. And a lot of that that is obviously in the outsourced IT companies including ones we invest in but also comes from many multinational companies having big tech operations in India. So there’s a very interesting and and varied story there. And, you know, we have quite a broad exposure to different parts of the market.

CS: Right. I’ll just ask a follow up, because it is to do with India, but maybe perhaps because it’s interesting sort of surrounding your process in general. Maybe just talk to me about how valuation fits into your process to a degree, given how you characterise the market. Maybe just give us a view on how you go about valuing a company and do you have set targets, how that sort of works with the company?

JC: Yeah, yeah, absolutely. So we use what we call an expected return framework where we are looking forward over five years and really trying to forecast what our annualised return per year will be from investing in any stock. And there are really, you know, only a few components to that. So the return from investing in a stock, it should be the sum of earnings growth plus dividends, plus any change in valuation. And then in emerging markets we also consider foreign exchange rates as well. So, you know, for us, we always say we’re trying to own businesses where we can generate a double digit expected return. And so therefore we need, you know, the combination of earnings dividends and then any change in valuation to support that. I think India is a good example because it is a market where we have had less invested in the last few years than we would have typically done given the, you know, the significant amount of very high quality businesses there.

And the reason was that within that expect return framework, yes there was earnings growth and lots of it probably not much dividends, but the challenge has been on that change in valuation because we’ve seen businesses trading on 60, 70, 80 times earnings that we felt would eventually trade on 20 or 30 times earnings. And obviously that’s a big valuation compression that then deducts from your total return and makes it harder to get to that double digit number.

Now there has been a weaker market, you know, if you look over a one year view, I think India’s down slightly at least in dollar terms, and that’s come at a time when other markets like Korea and China have gone up a lot. So, you know, in relative terms that that valuation has become more attractive, but also in absolute terms because when you go sideways for a year while the earnings are have grown for a year, your multiples have come down. So India’s actually a market where we are on the lookout and have added some names again, but a market where, you know, there’s a long list of names we would like to own, but we think the valuation has been a bit high and we are, you know, laser focused on those names to see if an opportunity emerges into act if it does.

CS: And that just quickly, just to follow up on that five year, those five year estimates, I mean, I’m assuming that is to do with the because that’s not exactly extremely common. Is it forward looking forward five years for something like this? I’m assuming that leans into the platform you have with the research, et cetera, et cetera, allowing you to do that?

JC: Absolutely. Yeah. So we, you know, I think as a business you are always trying to understand your competitive advantage. And as investors, we’re trying to understand that too. And look, we can look in a market like India is a good example. It’s very well covered both by foreign and domestic research companies. You have certain large-cap names which have over 40 or 50 analysts looking at the stocks. But when you actually look one level of detail further, those analysts are providing 40 or 50 estimates for the first year of earnings and the second year of earnings, but almost none for any years after that.

So you have these markets where they’re intensely well covered on a near term view, but very undercover from a kind of medium term view. And so you’re quite right, you know, where we’re trying to differentiate and create performance, and this isn’t just true for our emerging markets platform, but is true for you know, really most of what we do across the world and fundamental equities across asset classes is to take that medium term view, use the normalised framework that we talk about internally and to try and use that time different time horizon as a key advantage.

And as I mentioned earlier, we have really done that in practice by owning these stocks for a long time. Now I mentioned we’ve typically owned stocks on average for 10 years, so five might sound like a short time horizon, but I think there’s also this sense of, you know and I think this might be a quote from JP Morgan himself. He said, go as far as you can go, and then when you get there, you’ll be able to see further. And I think, you know, that’s how we kind of see it, you know, trying to predict things over a 10 year view is quite difficult really. It’s not realistic that you can have great insights over five years. I think you can kind of normalise a cycle take some view on current management strategy, capital allocation initiatives and see what they’ll end up. And then, yeah, at the end of that five year period, we’ll forecast for another five and hopefully if we’ve invested in the right business with the right management team in the right modes, things will look quite similar and we can, we can just keep ending start.

CS: It leads quite nicely into the next question because Mercado Libre is almost the dominant player, you know, e-commerce and digital. How far can you see for that story from here in terms of growth for that company?

JC: Yeah, Mercado’s an amazing company, and so we often people refer to Mercado Libre as MELI, which is its stock ticker and where it’s listed. But you know, Mercado Libre, you know, it started off actually in Argentina but obviously the market there has been quite difficult for a number of years. Maybe it’s getting better. We’ll see. So then it moved into Brazil. In Brazil. It was you know, started off in e-commerce only, but managed to expand into this very interesting credit and financial services businesses. And from Brazil, it’s expanded to Mexico. So I mean, it’s been a business that’s evolved a lot over time already. And I think we can see some early signs of where that evolution will take it going forward. I think what we can say is unlikely is that it will take it beyond the Latin American continent.

And they’re very focused on staying within their region, even though they have added more, you know smaller countries like Chile and Peru and so on. But what we see is that the company is making a lot of interesting moves into newer industries. And I think often when the experience from around the world has been that these kind of big platform e-commerce companies have ownership of the customer and the customer’s kind of purchasing financial routine. And that can be quite powerful.

So if you look at Mercado Libre, they’re still very early in the financial services space. There’s a lot of other financial products, whether that’s credit or insurance or, you know, wealth management, stockbroking and so on that they could explore at some point if they wanted to. We’ve also seen them make some interesting moves in the healthcare space. They’ve made a tentative step into the pharmacy world in Brazil, in Argentina. They’ve explored adding doctor consultations into their membership program. And again, the membership program’s also interesting because it touches on kind of content they have tie up with a number of the big streaming platforms. But again, maybe that’s an area they could push more into themselves.

So yeah, it’s an amazing company, which has, as I say, evolved a lot over time already, but that you can kind of always see the next frontier. And sometimes initiatives look interesting and end up being less impactful, but I think what we’re confident of is that a, even if these new initiatives didn’t come to pass, there’s a lot of growth left in the core. But also that management have a good track record and by planting these seeds, it should create a stronger duration for the business.

CS: Okay. I wanna sort of round it off by you. You know, we talked at the start about the dollar and you mentioned some of those structural themes. I mean, there are sort of three that sort of jump out. You’ve got AI, financials and then you’ve also, you know you mentioned those tech companies as well in there. Maybe just talk me through some of the structural themes you have at the moment and how they’re positioned with this weaker dollar. Is that gonna be the driver for their future growth, or is there a lot more than that? Again, to those story of those secular drivers?

JC: Yeah, I’d say it’s different by different things. So look, let’s start with AI and tech, which is massively important for emerging markets. And I can talk about why and why where our portfolio is like, that really isn’t a a dollar story at all. I mean, obviously these companies are actually paid in dollars, but the dollar where it’s going is not really relevant. What matters is a technology cycle. And if you look at top 10 holdings in our portfolio, you’ll see names like TSMC, SK Hynix, Samsung Electronics, and Delta Electronics, which are for, you know, absolute mainstays of, of what’s going on. I think what the point we always try and make is that, you know, none of what’s happening in the world at the moment, this whole AI revolution would be happening without the supply chains in Korea and Taiwan.

You know, if you think of what Nvidia actually sells, it sells well, what it does is it designs semiconductor chips and really what it’s selling is compute power and compute. You know, definitionally requires logic and memory and logic is a chip designed by Nvidia, but manufactured by TSMC in Taiwan. And compute requires memory, which is basically really only made in Korea. And then of course, if you have memory and logic, while you still need a power supply to connect it to the grid, and that’s what Delta Electronics does. It’s the leader in water efficient these days. And also power efficient supplies into these massive data centres. I mean, if you walk around the data centre, really every single piece of kit you see is made in Asia. And the level of innovation, the pace of innovation and the complexity of these systems has gone up in a way which has been very positive for the gross margins and the pricing power of these suppliers.

Now obviously there’s a lot of debates about where we are in the demand cycle for semiconductor chips and we are sensitive to valuation in cycles. But you know, at the same time these are stocks we try to own through cycles, so we wouldn’t really look to fully exit these names. We tend to try and trim them when we think valuations are kind of above normalised levels and add to them at what we think are attractive opportunities. But equally, we try and own these things through cycles rather than to time, time the cycles. And, you know, for now we have trimmed a little bit, but we remain quite well positioned. And I think for us that’s mostly around earnings multiples, really not being at exuberant levels. You know, it might surprise people to know that you SK Hynix a business with more than 50% market share, providing memory to the latest generation Nvidia trips, chips trades on a single digit price to earnings multiple.

Taiwan Semiconductor, you know, very well known business. A premium business for us trades on about 20 times earnings. So these are just not exuberant levels. And you know, this is a very fundamental technology driven story that is very exogenous to the dollar. If we go back to other areas that we have kind of structural drivers yeah, I think they are more domestic stories. Like we think of financial stocks, we think of consumer stocks there is a tie there. So, you know, obviously if we, as I mentioned right at the start, get a cycle where thanks to a weakening dollar and a cutting fed, we’re able to see a kind of reduction in interest rates in emerging markets that should really help consumer companies. It should, you know, it should help consumer spending and maybe realise some of the under penetration that we see across categories and simply for, for financial stocks, obviously as rates fall, it’s a mixed picture because you do see a reduction in your spreads to some extent.

But equally what we see as a more powerful driver is that you should see a big acceleration in credit growth because, you know, as I mentioned, a place like Brazil, if you’re starting with 15% interest rates, then it’s very expensive for people to have credit. And even if your spreads come off slightly your ability to kind of accelerate the granting of credit is there.

So yeah, I think often in emerging markets we have these stories that, you know, look good on a graph because you can show credit cards in Mexico compared to the US and you can barely see the bar chart from Mexico or, you know, penetration of certain consumer goods in India compared to, again, western markets. Obviously you need economic growth, you need some positive momentum to realise that potential. And also for us, you need stable currency regimes in order to translate any earnings growth back into into pounds or indeed into dollars. So I think, that’s where the dollar cycle really comes in. It comes in and kind of realising a potential we know is already there and helping us to ensure that we make kind of hard money returns in that potential also.

CS: And just lastly, does your macro overlay mean that you get to ignore everything Donald Trump says, or just most of the things he says?

JC: I think it’s very hard to ignore <laugh> what the president says because it is a big, big driver of markets, obviously with lower turnover. We are looking, trying to look in the medium term, but I mean, yeah, frankly, the way I think we think about this, that it creates opportunities. So, you know, we were active in making some small changes to the portfolio around the Liberation Day volatility because we saw several businesses where we thought tariffs were a non-issue, suddenly down 10%, 15%. And so I think in a way volatility should be good for long-term investors because it creates opportunities to buy into businesses at attractive pricing. Obviously, it also creates uncertainty, which is less helpful for businesses. And there are other parts of our portfolio which you know, are more sensitive to global cycles where some of the uncertainty is probably held back demand, and that’s been a challenge also.

So, no, I mean, and you can never ignore what’s going on in America, but as I say, I think for us, the big picture number one is that the dollar seems to be weakening and that should be good for a prolonged cycle in emerging markets over several years. Number two is that volatility does create opportunity, but obviously three, we do need to understand the impact of tariffs and some of these other things and understand if it changes the structural outlook for any of the businesses we’re invested in, especially those that are exporters to the US.

CS: Thank you very much, John. We almost got through the whole podcast as without mentioning Donald Trump, but unluckily, we just have to at the end, but thank you very much for your time today.

JC: No problem. Thank you, Chris. It was great questions and good to speak to you.

SW: Launched in 1991, JPMorgan Emerging Markets Trust has an established long-term track record of investing in emerging market equities. The team takes a long-term approach to stock picking, with the focus exclusively on companies rather than countries. To learn more about the JPMorgan Emerging Markets Trust please visit fundcalibre.com