Interim Results - 6 Months to 31 October 1999
Templeton Emerging Markets Investment Trust PLC
17 December 1999
TEMPLETON EMERGING MARKETS INVESTMENT TRUST PUBLIC LIMITED COMPANY('TEMIT')
('the Company')
----------------------------------------------------------------------------
Interim Results for the six months to 31 October 1999
Chairman's Statement
--------------------
To Shareholders:
At 31 October 1999, your Company had total assets of £680.2 million, compared
with £721.6 million at 30 April 1999 and £505.4 million at 31 October 1998.
Undiluted net asset value per share at the half-year stage was 144.4p, down 5%
since the last year end. Over the same period the MSCI Emerging Markets Free
Index, on a total return basis, rose by 5.2% and the IFCI Investible Index
increased by 5.3%. During the period the portfolio was rebalanced, reducing
the number of stocks held and reducing exposure to countries which are now
regarded as less promising. This and the Fund's lack of investments in
Greece, tended to depress the performance of the Fund relative to the indices.
At 31 October 1999, the portfolio had 95.4% of total assets invested in
equities. The largest country weighting was South Africa, accounting for
14.4% of the Company's total assets, compared with 11.0% at 30 April 1999.
The second largest weighting was in Brazil (11.6% up from 9.7%) followed by
Mexico (11.4% down from 12.6%).
As for regional exposure, Asia was the largest regional holding with 37.3%,
(41.8%) followed by Latin America 34.4%, (35.2%) with sub-Saharan Africa,
Southern and Eastern Europe and the Middle East accounting for the remainder
of the portfolio. The fund remains near to being fully invested with just
4.6% available for investment, reflecting the strong outlook for equities in
emerging markets.
At 31 October 1999 the discount to net asset value stood at 17.6%. The Board
has taken a number of steps to influence the level of the discount.
Shareholder authority to buy back shares will be used when appropriate and
your Directors have also decided to support the 'its' campaign which is being
promoted by the Association of Investment Trust Companies. The campaign's
main aim is to bring awareness and understanding to the benefits of investment
trusts to the British public. This will be achieved by an intensive media
campaign using press, TV and posters.
Your Board is still of the view that the long-term outlook for emerging
markets is positive. The investment which many countries are putting in place
to improve communications, healthcare and education should accelerate the pace
of change and this should lead to improved efficiency and prosperity.
The investment policy of TEMIT is unchanged; the investment manager searches
for individual investments which are priced so as to offer good fundamental
value. It is a strategy which is tried and tested over time and your Board is
pleased that, at the Annual General Meeting held on September 1999,
shareholders approved the proposal to extend the life of TEMIT until 2004.
The Honourable Nicholas F Brady
17 December 1999
Statement of Total Return
-------------------------
For the six months to
31 October 1999
Revenue Capital Total
£000 £000 £000
INCOME
(Losses)/gains on investments - (44,061) (44,061)
Investment income 8,630 - 8,630
Deposit interest 408 - 408
------ -------- --------
9,038 (44,061) (35,023)
------ -------- --------
EXPENSES
Administrative expenses (5,572) - (5,572)
------- -------- --------
PROFIT BEFORE TAXATION 3,466 (44,061) (40,595)
Taxation (1,060) - (1,060)
------- -------- --------
PROFIT AFTER TAXATION 2,406 (44,061) (41,655)
------- -------- --------
Dividend in respect of equity shares - - -
------- -------- --------
TOTAL RETURN FOR THE PERIOD 2,406 (44,061) (41,655)
------- -------- --------
Return per ordinary share (before dividend)
Basic 0.51p (9.36p) (8.85p)
Fully-diluted 0.51p (9.50p) (8.99p)
Return per ordinary share (after dividend)
Basic 0.51p
Fully-diluted 0.51p
Note: The capital element of returns is not distributable.
The revenue column of this statement is the profit and loss account of the
Company.
All revenue and capital items in the above statement derive from continuing
operations.
Statement of Total Return (Continued)
-------------------------------------
For the six months to Year ended
31 October 1998 30 April 1999
Revenue Capital Total Revenue Capital Total
£000 £000 £000 £000 £000 £000
- (186,587) (186,587) - 32,257 32,257
11,178 - 11,178 18,658 - 18,658
746 - 746 1,116 - 1,116
------- --------- --------- ------- ------ ------
11,924 (186,587) (174,663) 19,774 32,257 52,031
-------- --------- --------- -------- ------ ------
(4,135) - (4,135) (8,517) - (8,517)
-------- --------- --------- -------- ------- -------
7,789 (186,587) (178,798) 11,257 32,257 43,514
(2,366) - (2,366) (3,348) - (3,348)
-------- --------- --------- -------- ------- -------
5,423 (186,587) (181,164) 7,909 32,257 40,166
-------- --------- --------- -------- ------- -------
- - - (5,178) - (5,178)
-------- --------- --------- -------- ------- -------
5,423 (186,587) (181,164) 2,731 32,257 34,988
-------- --------- --------- -------- ------- -------
1.15p (39.64p) (38.49p) 1.68p 6.85p 8.53p
1.15p (44.52p) (43.37p) 1.68p 6.85p 8.53p
1.15p 0.58p
1.15p 0.58p
Dividend Policy
In accordance with the Company's stated policy, no interim dividend is
declared for the period.
(A dividend of 1.10 pence per Ordinary Share was paid for the year ended 30
April 1999.)
Summarised Balance Sheet
------------------------
As at As at As at
31 October 1999 31 October 1998 30 April 1999
£000 £000 £000
(unaudited) (unaudited) (audited)
ASSETS
Investments at valuation 648,702 413,170 704,083
------- ------- -------
Net Current Assets 31,454 92,249 17,488
------- ------- -------
680,156 505,419 721,571
------- ------- -------
CAPITAL AND RESERVES
Called-up share capital 117,726 117,681 117,681
Share premium account 275,265 275,071 275,071
Capital reserves 273,215 98,431 317,275
Revenue reserves 13,950 14,236 11,544
------- ------- -------
Shareholders' Funds 680,156 505,419 721,571
------- ------- -------
The unaudited interim financial information, which does not comprise full
statutory accounts in terms of the Companies Act 1985, has been prepared on
the basis of the accounting policies in the statutory accounts for the year
ended 30 April 1999. The statutory accounts, which have been filed with the
Registrar of Companies, received an unqualified audit report and did not
contain a statement under section 237(2) or (3) of the Companies Act 1985.
Templeton Investment Management Limited
17 December 1999
GEOGRAPHIC ASSET ALLOCATION
----------------------------
As at 31 October 1999 and 30 April 1999
As at 31 October 1999 As at 30 April 1999
South Africa (14.39%) (10.96%)
Brazil (11.59%) (9.74%)
Mexico (11.35%) (12.58%)
Singapore (8.88%) (9.58%)
Thailand (6.88%) (8.16%)
Hong Kong (6.58%) (6.69%)
Korea(South) (6.32%) (6.16%)
Argentina (5.75%) (4.72%)
Indonesia (5.45%) (3.88%)
Hungary (2.62%) (1.57%)
Philippines (2.52%) (2.09%)
Turkey (2.48%) (4.98%)
Venezuela (2.27%) (2.42%)
Chile (2.10%) (3.62%)
Czech Republic (1.83%) (1.27%)
Poland (1.25%) (0.84%)
Russia (0.70%) (0.39%)
Peru (0.69%) (0.94%)
Colombia (0.68%) (1.16%)
China (0.44%) (0.58%)
Israel (0.33%) (0.34%)
Pakistan (0.12%) (0.53%)
Taiwan (0.08%) (0.00%)
Slovak Republic (0.05%) (0.05%)
Egypt (0.03%) (0.08%)
Botswana (0.01%) (0.04%)
Estonia (0.00%) (0.01%)
Ghana (0.00%) (0.06%)
India (0.00%) (1.59%)
Malaysia (0.00%) (2.51%)
Sri Lanka (0.00%) (0.01%)
Zimbabwe (0.00%) (0.02%)
Liquid Assets (4.61%) (2.43%)
TOP TWENTY HOLDINGS
-------------------
As at 31 October 1999
Market
Value
Company Country Industry £000's
Telefonos de Mexico SA (Telmex) * Mexico Telecommunications 30,529
Cemex SA Mexico Building Materials
& Components 18,731
Anglo American PLC South Africa Metals & Mining 17,353
Korea Electric Power Corp. Korea (South) Utilities Electrical
& Gas 16,858
Thai Farmers Bank Public Co. Ltd. Thailand Banking 16,513
Cheung Kong Holdings Ltd. Hong Kong Multi-Industry 15,578
PT Telekomunikasi Indonesia
(Persero) Indonesia Telecommunications 13,710
Centrais Eletricas Brasileiras
SA (Electrobras) Brazil Utilities Electrical
& Gas 13,093
Grupo Financiero Banamex
Accival Sa De CV Mexico Banking 12,493
Tele Centro Sul Participacoes SA Brazil Telecommunications 11,430
United Overseas Bank Ltd. Singapore Banking 11,281
Sasol Ltd. South Africa Energy Sources 11,244
South African Breweries Plc. South Africa Beverages & Tobacco 10,890
Cia Vale Do Rio Doce Brazil Metals & Mining 10,293
Telecom Argentina Stet-France
Telecom SA * Argentina Telecommunications 10,197
Samsung Display Devices Ltd. Korea (South) Electrical &
Electronics 10,116
Telefonica De Argentina SA * Argentina Telecommunications 9,543
Keppel Corp., Ltd. Singapore Transportation 9,106
Perez Companc SA Argentina Energy Sources 9,058
Electricidad De Caracas
Saica Saca * Venezuela Utilities Electrical
& Gas 8,998
-------
Top 20 Holdings - 39.26% of Net Assets 267,014
-------
* U.S. Listed
INVESTMENT REVIEW
------------------
This is the semi-annual report for the Templeton Emerging Markets Investment
Trust Plc covering the six-month period ending October 31, 1999.
During the period, we continued to rebalance the portfolio to concentrate on
fewer, more attractive stocks in more promising markets. As a result of this
rebalancing, the Trust is no longer exposed to a number of less promising
countries. In Europe, we sold the Trust's holdings in Estonia in favour of
more attractive opportunities in Poland and the Czech Republic, while the
holdings in Ghana and Zimbabwe were sold in favour of investments in South
Africa and that nation's leadership role in any African market advance. In
Asia, we sold the Trust's holdings in Malaysia due to the increased political
risk inherent in that country. We also sold the Trust's holdings in Sri Lanka
and India due to infrastructure problems in these countries which have tended
to reduce liquidity and make the transfer of funds difficult in the extreme.
(In Asia we have also added holdings in Taiwan as the combination of
earthquakes and political uncertainty have made many of the island's stocks
more attractive). As of the end of October, the largest portion of the Trust's
holdings could be found in South Africa 14.4%, followed by Brazil 11.6%,
Mexico 11.4% and Singapore 8.9%.
Despite the rebalancing, many of the Trust's top holdings remained unchanged.
However, we sold the Trust's holdings in Telebras, Brazil's former
telecommunications monopoly, in favour of investment in Tele Centro Sul, one
of Telebras' former constituents. In addition, varying performance of
individual markets around the world resulted in Eletrobras (Brazil) and
Telekomunikasi Indonesia (Indonesia) replacing Akbank (Turkey) and City
Developments (Singapore) among the Trust's top 10 holdings.
Politics
--------
Political uncertainty affected the performance of many markets during the
six-month period. In Argentina, political rhetoric leading up to the October
24 vote caused a great deal of concern. A trailing candidate began raising
spectres of the nation's heavy foreign debt burden and brought into question
the currency's one-to-one peg with the US Dollar. However, his efforts were in
vain and Fernando de la Rua came away from the election as the new president.
De la Rua has voiced his support of the peg and government austerity, easing
investor fears.
In Asia, Indonesia held its first fully democratic election in over 30 years,
for which Megawati Sukarnoputri's PDI party emerged as the nation's strongest
party. However, her popular appeal was not enough to win her the presidency
when the votes were finally cast in Parliament. Muslim cleric and former
Megawati supporter Abdurrahman Wahid emerged as the nation's leader. Minor
rioting was reported in response to the upset, and rather than see total
chaos, all but one political leader bowed out of the following day's vice
presidential race to give Ms. Sukarnoputri the second seat. The newly named
government is the first truly representative government in Indonesia's
history. It contains ministers from a wide range of parties and interest
groups and should prove an interesting and a positive development for a
population used to strong-arm politics.
In South Africa, the mantle of leadership was successfully passed from Nelson
Mandela to Thabo Mbeki, keeping control of the nation firmly in the hands of
the ANC. The elections were marred by little violence with queues of voters
waiting patiently to cast their votes. The new president can hardly be
considered new leadership, however, as Mbeki has been running the country from
behind the scenes for some time. We expect to see continued good leadership
during his official term as state leader.
Economics
---------
The recovery in Emerging Markets which began back in September 1998 continued
to gather steam during 1999. Countries in Asia continued to report
strengthening trade and consumption levels and unemployment levels topped out
and began a tentative reduction. However, while many nations reported economic
improvements, the stock markets took a break for much of the period as
investors took profits on the market strength.
In Eastern Europe, signs of an economic recovery began to appear as the
six-month period ended. These markets and economies are being driven by the
desire to narrow the gap with EU member countries in their bid to become
members in 2000 and 2001. Poland and the Czech Republic were both strong
beneficiaries of this effort. Meanwhile Slovakia and, farther to the south,
Turkey voiced concerns that they would face harsher criteria before being
considered for membership.
Latin America showed little sign of an economic recovery, but did show some
signs of reaching a bottom. Ecuador stole the focus for a short while when it
defaulted on a portion of its Brady bond debt and began restructuring
negotiations on its Eurobonds. Holders of the defaulted bonds decided to make
Ecuador a battlefield against selective default, fearing a precedent may be
set for the rest of the region.
The reform process continued in Brazil with the government winning its Supreme
Court case allowing tax reform. However, it lost its case to change the
pension system on the grounds of constitutionality and has since been forced
to undertake amending the constitution to compensate. Venezuela also continued
along this path, with the election of a Constitutional Assembly whose purpose
is to completely rewrite the nation's primary law document. President Hugo
Chavez has many supporters among the Assembly members, since roughly 92% of
those voted to the Assembly supported Chavez at the time of the vote. The
president has pushed to see the new constitution is voted on quickly and a new
government is put in place. A referendum on the draft constitution is expected
in November or December pending approval by the Assembly itself.
Outlook
-------
We continue to expect the Emerging Markets to remain on a recovery/growth
track for the next three to four years. Economic conditions continue to
improve, and it is only a matter of time before the markets begin to move once
again in expectation of even greater growth. We believe Asia will continue to
lead this recovery, followed by Eastern Europe, Africa and Latin America.
There will, of course, be periods of weakness along the way as investors take
profit on gains and prepare for such events as the dawning of the new
millennium. But over the long run, we expect the trend to be preserved.
Thank you for your continued interest and support.
Dr. J. Mark Mobius
Director
17 December 1999
Copies of the Interim Report will shortly be sent to shareholders.
For further information, please contact James Sharp, Templeton Investment
Management Limited (Tel: 0131-469 4000); Arthur Copple or Philip Middleton,
Merrill Lynch International (Tel: 0171-772 1000).
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