Interim Management Statement

RNS Number : 1340O

Templeton Emerging Markets IT PLC

02 March 2009

 

Templeton Emerging Markets Investment Trust PLC ("the Company")

Interim Management Statement

For the three months ended 31 January 2009

This interim management statement relates to the period 1 November 2008 to 31 January 2009 and is the Company's second interim management statement for the financial year ending 30 April 2009, as required by the UK Listing Authority's Disclosure and Transparency Rule 4.3.

OBJECTIVE

The Company's investment objective is to provide long term capital appreciation for its investors through investment in companies operating in emerging markets or whose stocks are listed on the stock markets of such countries.

FINANCIAL POSITION

	As at 31 Jan 2009 (unaudited)	As at 31 Oct 2008 (unaudited)
Total assets (Cum-income)	£953m	£928m
Total assets (Ex-income)	£930m	£910m
Net asset value (Cum-income)	288.5p	280.8p
Net asset value (Ex-income)	281.5p	275.5p
Share price	265.8p	252.0p
Discount (Cum-income)	7.9%	10.2%
Discount (Ex-income)	5.6%	8.5%

Share price is at the UK market closing mid price.

Net asset value is unaudited and is at closing bid prices. Assets are priced at local close or adjusted for fair value at US Eastern market close.

Further information can be found at www.temit.co.uk.

FINANCIAL PERFORMANCE

Share price Net asset value MSCI Emerging Market Index S&P/IFCI Composite Index

1 Month % -2.3 -4.2 -6.7 -7.0

3 Months % +5.5 +2.7 +4.6 +4.0

1 Year % -33.1 -34.8 -31.0 -31.7

3 Years % -5.2 -7.4 -10.0 -8.9

5 Years % +87.2 +71.3 +67.8 +73.0

Share price Net asset value MSCI Emerging Market Index S&P/IFCI Composite Index

Year to 31 Jan 2009 % -33.1 -34.8 -31.0 -31.7

Year to 31 Jan 2008 % +32.8 +35.2 +21.8 +21.8

Year to 31 Jan 2007 % +6.8 +5.1 +7.1 +9.5

Year to 31 Jan 2006 % +72.0 +62.5 +58.3 +58.5

Year to 31 Jan 2005 % +17.0 +15.8 +17.8 +19.8

All figures are calculated in Sterling on a total return basis i.e. with net dividends reinvested

Source: Franklin Templeton Investments / Copyright - © 2008 Morningstar, Inc. All rights reserved.

   MARKET VOLATILITY AND OUTLOOK

     The three-month period ended January 2009 witnessed continued market volatility due to widespread concerns over significantly slowing growth globally and the continued impact of the credit crisis on global financial markets. Exchange rates in three of the largest currency exposures, US dollar, Hong Kong dollar and Indian rupee, appreciated approximately 10% against Sterling over the period which benefited overall performance. Templeton Asset Management Limited (the Investment Manager) believes that the longer-term outlook for emerging markets remains positive due to their relatively strong fundamental characteristics and faster growth rates compared with their developed counterparts. Many of the emerging countries, Asian ones in particular, have built up sizeable foreign exchange reserves and thus are better able to withstand turbulence brought about by external forces. Central banks and governments globally have taken measures to stimulate growth by lowering interest rates and implementing fiscal measures. Nevertheless, the Investment Manager expects more volatility in view of recession concerns in major world economies, volatile exchange rates and commodity prices, and a global credit crunch. These together with corrections in global equity markets, including emerging markets, may be attractive levels for investment by the Company. In most cases, the undemanding valuations in emerging markets have already discounted the weaker earning prospects and thus a return of bargain investors could see stock prices rise in the future.

Between 31 October 2008 and 31 January 2009, the net asset value of the Company increased by 2.7% to 288.5 pence. 

MATERIAL EVENTS AND TRANSACTIONS

The Company received Court of Session approval on 5 December 2008 for the cancellation of the entire share premium account and £58.2 million of the capital redemption reserve. The cancellation of these reserves was approved by the shareholders at the AGM held in September 2008.  

The Company appointed Winterflood Investment Trusts as its new Financial Advisor and Corporate Broker in January following the resignation of UBS Limited in December.

The Company's Chairman, Peter Smith, purchased 10,000 shares in the Company on 21 January 2009.

SHARE BUY BACKS

During the period, the Company bought back and cancelled 80,500 shares (0.02% of the issued share capital) for a total consideration of £187,000.

HALF YEARLY REPORT

The half yearly report to 31 October 2008 was approved by the Board on 17 December 2008 and released to the market on that date.

    INVESTMENT PORTFOLIO UPDATES

The Company continued to develop communication channels with shareholders in the period. A new facility allowing investors to receive stock market announcements, factsheets and market reviews by email has been added to the TEMIT website. The first quarterly TEMIT web conference was held on 20 January: this provided an overview of portfolio activity in the three months to the end of December 2008. A replay or transcript of the conference is available on the website (www.temit.co.uk) in the News & Commentary section.  The next web conference will take place at the end of April. Please consult the website during March for confirmation of exact dates and times. The enhanced quarterly investment report to December 2008 is also now available on the website. Hard copies of both the web conference transcript and the quarterly investment report can be requested from the Client and Dealer Services team on freephone 0800 305 306 or on [phone].

   PORTFOLIO CHANGES

The Manager reports the following principal changes in the portfolio:

Top Purchases (total value £56.5m)

Anglo American Corporation - South Africa - Diversified Metals & Mining

Anglo American is an international natural resources group. The stock provides attractive valuations due to a correction in commodity prices. While coal and metal prices have generally fallen, the recent trend of rising operating costs was broken due to the rapidly falling South African Rand and lower variable costs including those electricity and salaries. This was an addition to an existing holding.

Sesa Goa - India - Steel 

Sesa Goa is one of the biggest exporters of iron ore in India. Again, the acquisition of this stock was made at an attractive price due to a correction in commodity prices. Iron ore prices have held up better than other minerals' because of the highly consolidated competitive environment. While spot prices are no longer at huge premiums to contract ones, they remain at levels that translated into high profitability. As per capita consumption of steel in emerging markets is far below those in developed countries, the long-term prospects are intact especially if governments invest in infrastructure construction to stimulate their economies. This was an addition to an existing holding.

Tata Consultancy - India - IT Consultancy & Other Services 

A major IT consulting company in India and is well positioned to benefit from the trend of outsourcing of services to Indian consulting companies. Although the sector is highly dependent on outsourcing activities of American and European corporations, it may not only survive this global downturn with its high competitiveness but also gain business and market share as their customers become more cost-conscious. That competitiveness is further enhanced by the recent weakness in the Indian Rupee. This was an addition to an existing holding.

Infosys Technologies - India - IT Consulting & Other Services

Infosys is amongst India's top IT consulting companies serving large Fortune 500 corporations. The stock is well positioned to benefit from the trend of outsourcing of services to Indian consulting companies. Infosys enjoys a similar favourable environment like Tata Consultancy, but has the advantage of a more diversified clientele and a lower concentration for the banking and financial sector. This is a new holding.

Victory City - Hong Kong - Textiles

The company is a textile manufacturer and processor with production facilities in China, and provides an attractive valuation. The share price dropped recently due to liquidity concerns; however, the balance sheet has significantly improved after the recent rights issue. Most of Victory City's revenues are derived from the sales of fabric and yarn and are thus not subject to the risks of possibly increasing protectionism. While the recently expanded garment business faces a sharper downturn, it should offer good synergy in the long term. This is a new holding.

Top Sales (total value £12.7m)

MOL - Hungary - Integrated Oil & Gas

A Hungarian integrated oil and gas company. The acceptance of a generous tender offer made by a significant bidder was the main reason behind sale of the stock. Although MOL remains one of the most profitable oil & gas companies in the region, there are increasing worries about the deteriorating economic slowdowns in the region. The government stance against any overseas takeover bids on MOL may also hurt sentiment. This was a partial disposal of the holding.

Lotos Group - Poland - Oil & Gas Refining & Marketing    

Lotos is an oil refining and marketing company in Poland. During the period, its peer, PKN Orlen (Poland) was purchased in preference to this stock. The company's balance sheet is relatively stretched, so it may face the pressure of refinancing its short-term debts. This was a complete disposal of the holding.

   Copel - Brazil - Independent Power Producers

Copel is an integrated electric utility in Brazil that serves the Parana region. Privatisation may remain stagnant under the current government coupled with unfavourable regulations. While the less cyclical nature of the business stands for good defence in case of any further market weaknesses, there are opportunity costs if the market rises. This was a complete disposal of the holding.

Kimberly Clark - Mexico - Household Products

Kimberly Clark is Mexico's leading manufacturer and marketer of tissue products for consumers, institutions and health care. While the return on equity was reasonable, there are concerns about the slower demand growth and possible profit margin declines. The company remains one of the few pure consumer plays in Mexico. The relief in operating costs should at least offset part of slower sales growth. However, relatively speaking, its valuation is becoming less attractive This was a complete disposal of the holding.

VTech Holdings - Hong Kong - Communications Equipment 

VTech is one of the world's major manufacturers and distributors of cordless telephones and other telecommunication products. Shares were purchased at lower levels during the fourth quarter of 2008. As the share price continues to recover, the position has become relatively large; the stock levels were therefore trimmed to raise cash for better bargains. In addition, the diversification into Europe and emerging markets may not suffice to compensate for the rapidly falling sales in the US. This was a partial disposal of the holding.

Geographic Allocation

	% of net assets as at 31 Jan 2009	% of net assets as at 31 Oct 2008
LATIN AMERICA
Brazil (including US listings)	21.9	22.3
Mexico	-	0.2
ASIA
China	20.3	16.3
Thailand	9.9	8.8
South Korea	8.6	8.0
India	8.5	5.8
Indonesia	3.6	2.6
Taiwan	2.3	1.6
Pakistan	0.8	1.5
EUROPE
Turkey	9.5	9.8
Russia (including US listings)	5.9	8.7
Poland	1.8	3.1
Austria	1.5	1.5
Hungary	1.2	1.8
Sweden	0.2	0.2
AFRICA (SUB-SAHARA)
South Africa	1.9	1.0
TEMIT's other current assets	2.1	6.8
	100.0	100.0

Sector Allocation

	% of net assets as at 31 Jan 2009	% of net assets as at 31 Oct 2008
Energy	30.7	33.8
Financial	23.3	21.8
Materials	17.5	17.3
Telecommunication Services	6.6	3.2
Consumer Discretionary	6.0	4.7
Industrials	5.3	5.1
Consumer Staples	4.4	3.4
Information Technology	4.1	3.6
Utilities	0.0	0.3
Healthcare	0.0	0.0
TEMIT's other current assets	2.1	6.8
	100.0	100.0

Top Ten Holdings

Country	Security	Sector	% of net assets as at  31 Jan 2009	% of net assets as at  31 Oct 2008
Brazil	Companhia Vale do Rio Doce, ADR	Materials	6.5	5.8
Brazil	Unibanco - Uniao de Bancos Brasileiros SA, GDR	Financial	5.5	5.7
Brazil	Petroleo Brasileiro SA, ADR	Energy	5.3	5.0
South Korea	Hyundai Development Co.	Industrials	5.1	4.8
Turkey	Akbank TAS	Financial	4.7	5.1
Brazil	Banco Bradesco SA, ADR	Financial	4.7	5.7
China	PetroChina Co Ltd	Energy	4.1	3.7
China	Dairy Farm International Holdings Ltd	Consumer Staples	4.0	3.4
China	Denway Motors Ltd	Consumer Discretionary	3.5	2.5
South Korea	SK Energy Co Ltd	Energy	3.5	3.2

The valuation of the securities used to calculate the percentage of total assets figures in the above Geographic, Sector and Top Ten Holdings tables have all been valued on a bid price basis.

This Interim Management Statement has been produced solely to provide additional information to shareholders of the Company to meet the relevant requirements of the UK Listing Authority's Disclosure and Transparency Rules. It should not be relied upon by any other party or for any other purposes. In addition, the views, information and data in this publication should not be deemed as a financial promotion or recommendation.

Other than described above, the Board is not aware of any events during the period from 1 November 2008 to the date of this statement which would have had a material impact on the financial position of the Company.

 
Issued on behalf of the Board
Sara A MacIntosh
for and behalf of Franklin Templeton Investment Management Limited
Secretary 

Date:  2nd March 2009

End of interim management statement

For further information please contact Client Dealer Services at Franklin Templeton Investment Management Limited on freephone 0800 305 306 [phone].

 

END

 

 

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