In contrast to previous years, when MMIT delivered strong returns driven by small- and mid-cap emerging market companies despite broader EM equities lagging, the asset class entered a recovery phase in 2025. Emerging markets demonstrated to global investors that they can deliver strong returns in a market previously dominated by American exceptionalism.
However, the benefits were largely captured by a small number of mega-cap stocks, resulting in unusually narrow market leadership. While gains have been highly concentrated so far, a broader set of supportive dynamics for emerging markets should increasingly extend beyond the largest stocks and benefit quality small- and mid-cap companies.
At the same time, many of our holdings have continued to execute well operationally, but this has not been fully reflected in share prices due to macroeconomic headwinds. As these pressures ease, we see scope for a catch-up in valuations, providing support to the portfolio in the years ahead.
Emerging Markets Supported by Numerous Tailwinds
Source: Bloomberg, Research Affiliates (RA) Asset Allocation Study. As of 31 December 2025.
At year end, emerging markets were trading at a 38% discount on a P/E basis and a 60% discount on a P/B basis relative to developed markets. These valuation gaps are particularly pronounced in the sectors we focus on, such as technology and consumer discretionary. Importantly, the attractive discounts noted above are also increasingly evident across quality stocks, extending beyond traditional value segments.
Furthermore, emerging markets are supported by a 9.4% weakening of the US dollar in 2025, which is expected to continue into 2026. This typically benefits EM currencies, with the Brazilian real, Colombian peso and Taiwanese dollar among the strongest performers this year. Emerging markets continue to maintain healthier debt levels than developed markets (69% versus 109% of GDP in 2024), while simultaneously offering stronger GDP and earnings growth projections.
Higher Growth in EMs Combined with Healthier Debt Levels
Source: IMF WEO October 2025, Bloomberg. * indicates forecast.
Political risk related to elections is lower this year, with major electoral events in 2026 limited to Vietnam and Brazil across our key markets. However, geopolitical risks more broadly remain elevated. Recent developments, including tensions between the US and Europe over Greenland and events in Venezuela, have already added complications to the outlook for 2026, alongside long-standing risks such as the Russia–Ukraine conflict, instability in the Middle East, global trade wars, and ongoing tension between China and Taiwan. We remain highly mindful of geopolitical risks and always apply a macro risk overlay to our bottom-up stock selection.
The Federal Reserve’s expected rate cuts this year further enhance the outlook, as lower US yields generally push investors toward higher-return emerging market assets—particularly as many EMs benefit from moderating inflation and higher real rates themselves. While effects may vary across countries, the global easing cycle provides a broadly supportive backdrop for EM performance.
Furthermore, a number of country-specific tailwinds should support our portfolio exposures. Taiwan continues to benefit from a powerful semiconductor investment cycle and a globally competitive innovation ecosystem. South Korea is advancing structurally in high-end manufacturing, materials and automation, where we continue to find globally competitive businesses trading at attractive valuations.
Taiwan and Korea Well Positioned in Semiconductor and AI Markets
Source: Statista, Semiconductor Industry Association, Bloomberg, Economic Times, South Korea Ministry of Trade. Data as of 31 December 2025.
Despite a challenging start to 2026, marked by foreign outflows amid reduced risk appetite and heightened macro volatility following recent geopolitical developments, India’s longer-term outlook remains compelling. We continue to look through near-term volatility, supported by resilient GDP growth, rising discretionary consumption and improving capital expenditure trends. The year 2026 could turn into another period of significant progress for the country.
Brazil offers selective opportunities as inflation moderates, interest rates decline and corporate balance sheets strengthen. We remain cautious around the upcoming elections, which are likely to introduce additional volatility in 2026.
While emerging markets have delivered strong headline returns this year, dispersion beneath the surface has been significant. With valuation spreads at elevated levels and earnings revisions diverging meaningfully by country, sector and company, passive exposure increasingly reflects index concentration rather than the breadth of opportunity available.
In this environment, disciplined bottom-up stock selection is essential to identifying structurally stronger businesses beyond benchmark heavyweights. We believe the portfolio is well positioned should the recovery broaden into under-owned areas of the market where fundamentals remain intact.
With a portfolio built around high-quality, lesser-known companies and a disciplined, active approach to capital allocation, we remain fully committed to our investment philosophy and to delivering long-term performance and shareholder value.
Since the inception of the strategy in 2018, our objective has remained unchanged: to deliver long-term performance by identifying high-quality, innovative, under-researched mid-cap compounders with strong fundamentals that are not represented in the benchmark. This disciplined investment philosophy has driven strong results over prior years, culminating in 35.2% outperformance against the MSCI EM Mid Cap Index in GBP terms by the end of 2024.
However, 2025 played out differently, despite emerging markets finally ending a decade of underperformance versus developed markets. The year proved challenging in relative terms for the strategy, as the market environment was particularly difficult for quality-oriented mid-cap stocks. Returns were increasingly driven by a narrow group of large, liquid companies and by style dynamics that ran counter to our investment approach.
That said, Q4 showed early signs of stabilisation and improvement. Over the quarter, MMIT’s net asset value returned 2.5%, while the MSCI EM Mid Cap Index (Net TR) delivered a return of 2.2% in GBP terms. This relative improvement was supported by solid operational performance across several portfolio holdings, with a number delivering results ahead of expectations.
Emerging markets recorded steady gains over the quarter, finishing the year as the strongest-performing global equity asset class. As is often the case in the early stages of a recovery, initial inflows were concentrated in the largest and most liquid stocks. Within the MSCI EM Index, the top five holdings accounted for over 40% of total returns in 2025 in USD terms, none of which MMIT hold.
Performance in EM Driven by a Few Large Companies
Source: Bloomberg. As of 31 December 2025.
Our investment universe is deliberately focused on lesser-known, under-researched small- and mid-cap companies across emerging markets, where we believe our bottom-up research adds the greatest value by looking beyond well-known benchmark constituents. The under-researched nature of this segment—typically marked by limited coverage, lower visibility and minimal benchmark overlap—can give rise to pricing inefficiencies that are largely absent in the highly efficient mega-cap space.
Active management is more likely to add value in these less crowded areas of the market, where returns are driven more by company-specific fundamentals than by index flows. Against a backdrop of unusually narrow market leadership, we believe this positioning may offer meaningful potential for relative catch-up as fundamentals reassert themselves.
During 2025, the strategy’s emphasis on quality encountered significant style headwinds, with quality stocks—especially within emerging markets—suffering one of their worst periods of relative underperformance compared with the broader benchmark. Smaller companies, particularly growth-oriented businesses in the technology sector, were disproportionately affected by continued macroeconomic and geopolitical uncertainty.
Investor risk appetite remained constrained, with capital rotating towards perceived safe-haven assets such as gold and towards larger, more liquid equities viewed as more resilient in volatile markets.During this period, investors favoured sectors such as banks, commodities and defence-related industries, supported by higher interest rates, elevated fiscal and defence spending, and ongoing geopolitical tensions. This defence-led rotation provided relative support to parts of the industrials and commodities sectors.
These areas, which are deliberately excluded from the portfolio due to their regulatory complexity, capital intensity and limited pricing power, were generally trading at lower valuation multiples and tended to be more resilient during periods of market correction.
EM Quality Has Fallen Behind Value This Year
Source: Bloomberg, MCP. Figures refer to past performance. Past performance is not a reliable indicator for future performance. As of 31 December 2025.
Additionally, China was a major contributor to emerging market performance in 2025, accounting for approximately 25% of MSCI Emerging Markets Index in USD terms gains while representing around 23.6% of the index. However, we believe the rally has been driven primarily by multiple expansion, improved sentiment and policy support rather than an improvement in underlying fundamentals such as earnings growth.
Economic data remains weak, highlighting a disconnect between market performance and a meaningful recovery, and gains have been concentrated largely in the technology sector, where valuations have become less compelling. Structural risks also remain, including the potential for abrupt and unpredictable regulatory intervention, as experienced in 2021.
Against this backdrop, we continue to approach the market with caution, while remaining open to selectively deploying capital where individual companies meet our quality, governance and valuation criteria, without compromising discipline in pursuit of exposure.
Furthermore, performance was negatively impacted by our exposure to the software and IT services sector (19.3% in MMIT versus 1.8% in the MSCI EM Mid Cap Index as of 31 December 2025). The sector experienced tariff-related volatility, which led many corporates to delay discretionary IT spending decisions into 2026. As Gartner, a leading independent IT research and advisory firm, has noted, this resulted in “a business pause on net-new spending due to a spike in global uncertainty.”
Looking ahead, Gartner forecasts global IT spending growth of 9.8% in 2026. We view the recent weakness as cyclical, with recovery prospects supported by AI-driven demand and the resumption of previously deferred projects.
As a result of these factors, relative performance this year has not matched the strong returns achieved in prior periods. While disappointing, such outcomes are not unusual for strategies with a high active share. They are an inherent feature of a differentiated investment approach and a key driver of long-term results. Periods of softer relative performance have occurred in the past and have often been followed by improved relative outcomes as stock-specific fundamentals reassert themselves. This is reflected in the trust’s since-inception outperformance of 6.5% against the MSCI EM Mid Cap Index in GBP terms, despite the current year’s drawdown.
Active portfolio management remained central to the team’s day-to-day process throughout the year. We increased exposure to existing high-conviction holdings trading at attractive valuations following periods of volatility and selectively initiated positions from our watchlist, taking advantage of temporary share price dislocations in companies we believe were unfairly impacted by broader market sentiment.
This has allowed us to acquire high-quality stocks at discounts to historical valuations during one of the weaker periods of relative performance for quality companies in recent years. At the same time, we trimmed or exited positions where changes in the macro environment had, in our assessment, materially weakened the investment case.
Over the course of the year, we rigorously revisited every investment case, challenging attribution, portfolio exposures and our assumptions around earnings and valuation. Above all, we have remained committed to our investment philosophy. Our focus is unchanged: investing in high-quality, lesser-known, well-managed companies that compound value over time and align with our strategy and responsible investment principles.
Style Headwinds Have Driven Valuation Compression
Source: Bloomberg, as of 31 December 2025. * Adjusted.
In this environment, the portfolio’s underlying fundamentals remain supportive. Market consensus forecasts a 23% forward EPS CAGR (three to five years) for the average portfolio company, supported by strong balance sheets and profitability, including a three-year average ROE of 23%, net debt/EBITDA of -0.5 and profit margins of 16%. In several cases, companies have delivered results ahead of expectations and seen earnings estimates revised upwards, yet share price performance has remained subdued.
MMIT Portfolio Offers Growth and Profitability
Source: Bloomberg. All figures Portfolio/Index averages in USD as of 31 December 2025. Portfolio data is based on available data for portfolio companies.
Periods such as these—following a challenging year but characterised by resilient fundamentals and improving growth prospects—are often when long-term opportunities in high-quality businesses begin to emerge.
Since the inception of the strategy in 2018, our objective has remained unchanged: to deliver long-term performance by identifying high-quality, innovative, under-researched mid-cap compounders with strong fundamentals that are not represented in the benchmark. This disciplined investment philosophy has driven strong results over prior years, culminating in 21.7% outperformance (MEMF Private C USD Founder) versus the MSCI EM Mid Cap Index in USD terms from inception through to the end of 2024.
However, 2025 played out differently, despite emerging markets finally ending a decade of underperformance versus developed markets. The year proved challenging in relative terms for the strategy, as the market environment was particularly difficult for quality-oriented mid-cap stocks. Returns were increasingly driven by a narrow group of large, liquid companies and by style dynamics that ran counter to our investment approach.
That said, Q4 showed early signs of stabilisation and improvement. During the quarter, MEMF’s net asset value increased by 2.9% (Private C USD Founder), compared with 2.2% for the MSCI EM Mid Cap Index (Net TR) in USD terms. This relative improvement was supported by solid operational performance across several portfolio holdings, with a number delivering results ahead of expectations.
Emerging markets recorded steady gains over the quarter, finishing the year as the strongest-performing global equity asset class. As is often the case in the early stages of a recovery, initial inflows were concentrated in the largest and most liquid stocks. Within the MSCI EM Index, the top five holdings accounted for over 40% of total returns in 2025 in USD terms, none of which MEMF holds.
Performance in EM Driven by a Few Large Companies
Source: Bloomberg. As of 31 December 2025.
Our investment universe is deliberately focused on lesser-known, under-researched small- and mid-cap companies across emerging markets, where we believe our bottom-up research adds the greatest value by looking beyond well-known benchmark constituents. The under-researched nature of this segment—typically marked by limited coverage, lower visibility and minimal benchmark overlap—can give rise to pricing inefficiencies that are largely absent in the highly efficient mega-cap space.
Active management is more likely to add value in these less crowded areas of the market, where returns are driven more by company-specific fundamentals than by index flows. Against a backdrop of unusually narrow market leadership, we believe this positioning may offer meaningful potential for relative catch-up as fundamentals reassert themselves.
During 2025, the strategy’s emphasis on quality encountered significant style headwinds, with quality stocks—especially within emerging markets—suffering one of their worst periods of relative underperformance compared with the broader benchmark. Smaller companies, particularly growth-oriented businesses in the technology sector, were disproportionately affected by continued macroeconomic and geopolitical uncertainty.
Investor risk appetite remained constrained, with capital rotating towards perceived safe-haven assets such as gold and towards larger, more liquid equities viewed as more resilient in volatile markets. During this period, investors favoured sectors such as banks, commodities and defence-related industries, supported by higher interest rates, elevated fiscal and defence spending, and ongoing geopolitical tensions. This defence-led rotation provided relative support to parts of the industrials and commodities sectors.
These areas, which are deliberately excluded from the portfolio due to their regulatory complexity, capital intensity and limited pricing power, were generally trading at lower valuation multiples and tended to be more resilient during periods of market correction.
EM Quality Has Fallen Behind Value This Year
Source: Bloomberg, MCP. Figures refer to past performance. Past performance is not a reliable indicator for future performance. As of 31 December 2025.
Additionally, China was a major contributor to emerging market performance in 2025, accounting for approximately 25% of MSCI Emerging Markets Index gains in USD terms while representing around 23.6% of the index. However, we believe the rally has been driven primarily by multiple expansion, improved sentiment and policy support rather than an improvement in underlying fundamentals such as earnings growth. Economic data remains weak, highlighting a disconnect between market performance and a meaningful recovery, and gains have been concentrated largely in the technology sector, where valuations have become less compelling.
Structural risks also remain, including the potential for abrupt and unpredictable regulatory intervention, as experienced in 2021. Against this backdrop, we continue to approach the market with caution, while remaining open to selectively deploying capital where individual companies meet our quality, governance and valuation criteria, without compromising discipline in pursuit of exposure.
Performance was also negatively impacted by our exposure to the software and IT services sector (20.2% in MEMF versus 1.8% in the MSCI EM Mid Cap Index as of 31 December 2025). The sector experienced tariff-related volatility, which led many corporates to delay discretionary IT spending decisions into 2026. As Gartner, a leading independent IT research and advisory firm, has noted, this resulted in “a business pause on net-new spending due to a spike in global uncertainty.”
Looking ahead, Gartner forecasts global IT spending growth of 9.8% in 2026. We view the recent weakness as cyclical, with recovery prospects supported by AI-driven demand and the resumption of previously deferred projects.
As a result of these factors, relative performance this year has not matched the strong returns achieved in prior periods. While disappointing, such outcomes are not unusual for strategies with a high active share. They are an inherent feature of a differentiated investment approach and a key driver of long-term results. Periods of softer relative performance have occurred in the past and have often been followed by improved outcomes as stock-specific fundamentals reassert themselves.
Active portfolio management remained central to our day-to-day process throughout the year. We increased exposure to existing high-conviction holdings trading at attractive valuations following periods of volatility and selectively initiated positions from our watchlist, taking advantage of temporary share price dislocations in companies we believe were unfairly impacted by broader market sentiment.
This approach has allowed us to acquire high-quality stocks at discounts to historical valuations during one of the weaker periods of relative performance for quality companies in recent years. At the same time, we trimmed or exited positions where changes in the macro environment had, in our assessment, materially weakened the investment case.
Over the course of the year, we rigorously revisited every investment case, challenging attribution, portfolio exposures and assumptions around earnings and valuation. Above all, we have remained committed to our investment philosophy. Our focus is unchanged: investing in high-quality, lesser-known, well-managed companies that compound value over time and align with our strategy and responsible investment principles.
Style Headwinds Have Driven Valuation Compression
Source: Bloomberg, as of 31 December 2025. * Adjusted.
In this environment, the portfolio’s underlying fundamentals remain supportive. Market consensus forecasts a 26% forward EPS CAGR (three to five years) for the average portfolio company, supported by strong balance sheets and profitability, including a three-year average ROE of 25%, net debt/EBITDA of -0.7 and profit margins of 15%. In several cases, companies have delivered results ahead of expectations and seen earnings estimates revised upwards, yet share price performance has remained subdued due to the macro headwinds described above.
MEMF Portfolio Offers Growth and Profitability
Source: Bloomberg. All figures Portfolio/Index averages in USD as of 31 December 2025. Portfolio data is based on available data for portfolio companies.
Periods such as these—following a challenging year but characterised by resilient fundamentals and improving growth prospects—are often when long-term opportunities in high-quality businesses begin to emerge.
”It’s not what happens to you, but how you react that matters.”
Epictetus
Dear Fellow MEMF Shareholder,
This year reminded us what active investing truly means — to act when necessary, to be patient when appropriate, and to hold conviction when it stands tested, revisited, and reaffirmed under new circumstances.
Active investing can also mean diverging from the market — sometimes sharply. That divergence can be uncomfortable in the short term, as it has been this year, but it is also what drives long-term results. By definition, active investing means being different from the benchmark, taking positions built on conviction, not composition, and aiming to deliver differentiated and sustainable returns. In previous years, the same approach led to significant outperformance, and we believe it has once again left the portfolio better positioned for what lies ahead. Our focus remains unchanged: we aim to invest in high-quality, well managed companies that compound value over time and align with our strategy and responsible investment principles.
Portfolio companies have shown the same proactive spirit. CarTrade for example, expanded through the OLX integration and doubled its user reach; E Ink committed to new capacity for next-generation displays; TOTVS continued to build on its strategic acquisition of StoneCo’s Linx unit to strengthen its leadership in enterprise retail software; and Park Systems continued to broaden its nanotechnology tools across industries, just to name a few.
This spirit and innovation is clearly paying off as companies across the portfolio have delivered strong Q2 reports with many beating expectation and upgrading their outlooks for the coming years. CarTrade’s revenue increased by 22% YoY and Profit After Tax increased 106% YoY; E Ink’s revenue increased by 35% YoY and gross margin increased by 60% (+15pp); TOTVS’ earnings beat their EPS estimate by +1.6%; and Park Systems’ revenue increased by 17% YoY, 5% ahead of Bloomberg consensus.
Fundamentals Should Drive Recovery: Q2 2025 Reports
Source: MCP, Bloomberg, company source. Figures refer to past performance. Past performance is not a guide to future performance.
Despite these strong company-level results, this year has been challenging, with gains concentrated in benchmark-heavy countries and sectors. Tariff-related uncertainty in the first half of the year pushed investors toward “safe havens,” while in emerging markets, value outperformed quality as capital rotated into lower-valuation, more defensive sectors like financials amid EM rate cuts. A defence-led rally boosted industrials, and China’s stimulus- and liquidity-driven rebound lifted the benchmark.
Meanwhile, our overweight in software weighed on performance as companies delayed IT projects in a volatile environment. In general, much of the rally in emerging markets this year has been driven by a handful of mega-cap stocks, while less-known companies have attracted less investor attention. The MSCI Emerging Markets Index is up approximately 28% year-to-date, with internal analysis suggesting that the top ten Asian technology names account for almost half of these gains1.
In Q2, we began to see early signs of a potential reversal, indicating that recent portfolio headwinds may have been cyclical. This view is cautiously supported by improving macro conditions — including easing tariff volatility, momentum in AI and technology, further interest rate cuts, and a declining USD — as well as country-specific catalysts in India, Taiwan, Korea, and Brazil. While these factors could provide a more supportive backdrop, we expect any recovery to become clearer over the course of next year as these trends gradually come into play.
The quarter began with renewed tariff uncertainty as President Trump again delayed the implementation of reciprocal tariffs, allowing time for several major trade deals to be struck with the EU, Korea, and Japan. Finally, tariffs took effect on 1 August across more than 90 countries, hitting India and Brazil hardest at 50%. Since then, trade-related volatility has eased, and markets have reacted less sharply to new tariff announcements than earlier in the year, when smaller emerging-market stocks were disproportionately affected as investors rotated into larger, lower-valued names and other perceived safe-haven assets amid heightened uncertainty.
EM Quality has Fallen Behind EM Value YTD
Source: Bloomberg. As of 30 September 2025.
During the early-year volatility, we increased our exposure to existing high-conviction names and selectively added new names from our watchlist by taking advantage of attractive valuations and temporary dislocations from companies that we believe were unfairly impacted by broader market sentiment. With tariff related volatility likely subsiding, quality names, should now be better placed for a recovery.
The technology sector once again outperformed most other sectors globally, driving gains in both the US and China. Strong Q2 results from US hyperscalers and confirmation of continued large-scale AI capital expenditure reignited confidence in AI-led growth. To put this into perspective, the Guardian reported that Big Tech has invested more than $155 billion in AI this year2 — roughly equivalent to the cost of building the International Space Station. Meanwhile, policy support for domestic chipmakers and new AI product launches from China’s leading technology firms have fuelled a rally in Chinese and Hong Kong tech stocks.
Hyperscaler Capex Driving AI Momentum
Source: CL Taiwan, Daiwa.
This strength in US and Chinese technology has also supported companies, including many in our portfolio, in emerging markets like Taiwan and South Korea which play vital roles in AI supply chains. For example, NVIDIA’s Rubin GPU rollout and rising ASIC volumes are boosting demand across the semiconductor supply chain, benefitting companies such as Elite Material, a global leader in high-performance copper clad laminates used in printed circuit boards. In its Q2 report, Elite announced an additional round of capacity expansion in 2026 due to strong demand, with revenue up 40% YoY. Other examples include Chroma raising its guidance for system-level testing revenue in light of rising demand from leading ASIC and GPU projects.
Other positive macro news for emerging markets comes in the form of the Federal Reserve’s first interest rate cut of the year this September, with rates now targeted at 4-4.25%. Fed officials also hinted that further rate cuts would follow in the remainder of the year. Lower US interest rates tend to benefit emerging markets by making lower yielding developed market assets less attractive, potentially prompting investors to seek higher returns in EMs some of which are also experiencing moderating local inflation, lower public debts and higher real rates. This can boost foreign direct investment and support EM asset prices. However, the impact is uneven, as greater risk appetite and lower US yields cannot fully offset weak macroeconomic conditions or poor corporate fundamentals in certain markets. Nevertheless, the continuation of the downward trajectory of global rate cuts should be positive for emerging markets overall.
Within our key markets, local factors are at play indicating the potential for country-level recoveries. Taiwan should benefit from the global AI momentum mentioned above with its global leadership in advanced semiconductors underpinning both industry demand and geopolitical importance. Korea should profit from a semiconductor recovery, as well as governance reforms and its Value Up initiative which is creating potential to unlock shareholder value by improving governance and capital allocation.
Meanwhile, India’s combination of fiscal prudence, resilient domestic consumption grounded in a young population, moderating inflation, and pro-growth policy support creates a constructive macro backdrop underpinning the country’s long term, high growth trajectory. In Brazil, while we expect volatility ahead of the 2026 elections, there is a clear path towards SELIC rate cuts and normalisation of real interest rates which would provide a catalyst for the Brazilian equities market.
China Rally Driven by Multiple Expansion, Not EPS Growth
Source: Macquarie.
While China has dominated headlines this year with a strong market rebound placing it among the top-performing countries, we believe the rally has been driven primarily by sentiment and policy stimulus, rather than underlying fundamentals, as reflected in persistently weak economic data this quarter. The lack of a clear recovery in the real economy raises questions about the rally’s sustainability. Additionally, the rally has been largely concentrated in the tech sector which is now trading at less attractive valuations. For these reasons, we continue to exercise caution. We have been carefully screening the Chinese market across select sectors to identify companies that meet our stringent quality and governance standards. While only a few appear potentially aligned with these criteria, we remain disciplined and will continue our search without compromising on quality.
Overall, as we reflect on the year, we are reminded of Epictetus’ words: “It’s not what happens to you, but how you react to it that matters.” While this year has presented significant challenges, it has only strengthened our conviction in both our strategy and our portfolio companies. Rather than being discouraged by volatility, we used it as an opportunity to deepen our positions in high-quality, well-managed businesses.
By staying disciplined and true to our active, conviction-driven approach, we believe we are now well positioned to benefit from key macro, country and sector specific tailwinds over the coming years. Reflecting this confidence, the team has increased its investment in the strategy — a clear signal of our optimism about the future of our portfolio companies and the opportunities ahead in emerging markets which we intend to capitalise on.
”It’s not what happens to you, but how you react that matters.”
Epictetus
Dear Fellow MMIT Shareholder,
This year reminded us what active investing truly means — to act when necessary, to be patient when appropriate, and to hold conviction when it stands tested, revisited, and reaffirmed under new circumstances.
Active investing can also mean diverging from the market — sometimes sharply. That divergence can be uncomfortable in the short term, as it has been this year, but it is also what drives long-term results. By definition, active investing means being different from the benchmark, taking positions built on conviction, not composition, and aiming to deliver differentiated and sustainable returns. In previous years, the same approach led to significant outperformance, and we believe it has once again left the portfolio better positioned for what lies ahead. Our focus remains unchanged: we aim to invest in high-quality, well managed companies that compound value over time and align with our strategy and responsible investment principles.
Portfolio companies have shown the same proactive spirit. CarTrade for example, expanded through the OLX integration and doubled its user reach; E Ink committed to new capacity for next-generation displays; TOTVS continued to build on its strategic acquisition of StoneCo’s Linx unit to strengthen its leadership in enterprise retail software; and Park Systems continued to broaden its nanotechnology tools across industries, just to name a few.
This spirit and innovation is clearly paying off as companies across the portfolio have delivered strong Q2 reports with many beating expectation and upgrading their outlooks for the coming years. CarTrade’s revenue increased by 22% YoY and Profit After Tax increased 106% YoY; E Ink’s revenue increased by 35% YoY and gross margin increased by 60% (+15pp); TOTVS’ earnings beat their EPS estimate by +1.6%; and Park Systems’ revenue increased by 17% YoY, 5% ahead of Bloomberg consensus.
Fundamentals Should Drive Recovery: Q2 2025 Reports
Source: MCP, Bloomberg, company source. Figures refer to past performance. Past performance is not a guide to future performance.
Despite these strong company-level results, this year has been challenging, with gains concentrated in benchmark-heavy countries and sectors. Tariff-related uncertainty in the first half of the year pushed investors toward “safe havens,” while in emerging markets, value outperformed quality as capital rotated into lower-valuation, more defensive sectors like financials amid EM rate cuts. A defence-led rally boosted industrials, and China’s stimulus- and liquidity-driven rebound lifted the benchmark.
Meanwhile, our overweight in software weighed on performance as companies delayed IT projects in a volatile environment. In general, much of the rally in emerging markets this year has been driven by a handful of mega-cap stocks, while less-known companies have attracted less investor attention. The MSCI Emerging Markets Index is up approximately 28% year-to-date, with internal analysis suggesting that the top ten Asian technology names account for almost half of these gains1.
In Q2, we began to see early signs of a potential reversal, indicating that recent portfolio headwinds may have been cyclical. This view is cautiously supported by improving macro conditions — including easing tariff volatility, momentum in AI and technology, further interest rate cuts, and a declining USD — as well as country-specific catalysts in India, Taiwan, Korea, and Brazil. While these factors could provide a more supportive backdrop, we expect any recovery to become clearer over the course of next year as these trends gradually come into play.
The quarter began with renewed tariff uncertainty as President Trump again delayed the implementation of reciprocal tariffs, allowing time for several major trade deals to be struck with the EU, Korea, and Japan. Finally, tariffs took effect on 1 August across more than 90 countries, hitting India and Brazil hardest at 50%. Since then, trade-related volatility has eased, and markets have reacted less sharply to new tariff announcements than earlier in the year, when smaller emerging-market stocks were disproportionately affected as investors rotated into larger, lower-valued names and other perceived safe-haven assets amid heightened uncertainty.
EM Quality has Fallen Behind EM Value YTD
Source: Bloomberg, as of 30 September 2025.
During the early-year volatility, we increased our exposure to existing high-conviction names and selectively added new names from our watchlist by taking advantage of attractive valuations and temporary dislocations from companies that we believe were unfairly impacted by broader market sentiment. With tariff related volatility likely subsiding, quality names, should now be better placed for a recovery.
The technology sector once again outperformed most other sectors globally, driving gains in both the US and China. Strong Q2 results from US hyperscalers and confirmation of continued large-scale AI capital expenditure reignited confidence in AI-led growth. To put this into perspective, the Guardian reported that Big Tech has invested more than $155 billion in AI this year2 — roughly equivalent to the cost of building the International Space Station. Meanwhile, policy support for domestic chipmakers and new AI product launches from China’s leading technology firms have fuelled a rally in Chinese and Hong Kong tech stocks.
Hyperscaler Capex Driving AI Momentum
Source: CL Taiwan, Daiwa.
This strength in US and Chinese technology has also supported companies, including many in our portfolio, in emerging markets like Taiwan and South Korea which play vital roles in AI supply chains. For example, NVIDIA’s Rubin GPU rollout and rising ASIC volumes are boosting demand across the semiconductor supply chain, benefitting companies such as Elite Material, a global leader in high-performance copper clad laminates used in printed circuit boards. In its Q2 report, Elite announced an additional round of capacity expansion in 2026 due to strong demand, with revenue up 40% YoY. Other examples include Chroma raising its guidance for system-level testing revenue in light of rising demand from leading ASIC and GPU projects.
Other positive macro news for emerging markets comes in the form of the Federal Reserve’s first interest rate cut of the year this September, with rates now targeted at 4-4.25%. Fed officials also hinted that further rate cuts would follow in the remainder of the year. Lower US interest rates tend to benefit emerging markets by making lower yielding developed market assets less attractive, potentially prompting investors to seek higher returns in EMs some of which are also experiencing moderating local inflation, lower public debts and higher real rates. This can boost foreign direct investment and support EM asset prices. However, the impact is uneven, as greater risk appetite and lower US yields cannot fully offset weak macroeconomic conditions or poor corporate fundamentals in certain markets. Nevertheless, the continuation of the downward trajectory of global rate cuts should be positive for emerging markets overall.
Within our key markets, local factors are at play indicating the potential for country-level recoveries. Taiwan should benefit from the global AI momentum mentioned above with its global leadership in advanced semiconductors underpinning both industry demand and geopolitical importance. Korea should profit from a semiconductor recovery, as well as governance reforms and its Value Up initiative which is creating potential to unlock shareholder value by improving governance and capital allocation.
Meanwhile, India’s combination of fiscal prudence, resilient domestic consumption grounded in a young population, moderating inflation, and pro-growth policy support creates a constructive macro backdrop underpinning the country’s long term, high growth trajectory. In Brazil, while we expect volatility ahead of the 2026 elections, there is a clear path towards SELIC rate cuts and normalisation of real interest rates which would provide a catalyst for the Brazilian equities market.
China Rally Driven by Multiple Expansion, Not EPS Growth
Source: Macquarie.
While China has dominated headlines this year with a strong market rebound placing it among the top-performing countries, we believe the rally has been driven primarily by sentiment and policy stimulus, rather than underlying fundamentals, as reflected in persistently weak economic data this quarter. The lack of a clear recovery in the real economy raises questions about the rally’s sustainability. Additionally, the rally has been largely concentrated in the tech sector which is now trading at less attractive valuations. For these reasons, we continue to exercise caution. We have been carefully screening the Chinese market across select sectors to identify companies that meet our stringent quality and governance standards. While only a few appear potentially aligned with these criteria, we remain disciplined and will continue our search without compromising on quality.
Overall, as we reflect on the year, we are reminded of Epictetus’ words: “It’s not what happens to you, but how you react to it that matters.” While this year has presented significant challenges, it has only strengthened our conviction in both our strategy and our portfolio companies. Rather than being discouraged by volatility, we used it as an opportunity to deepen our positions in high-quality, well-managed businesses.
By staying disciplined and true to our active, conviction-driven approach, we believe we are now well positioned to benefit from key macro, country and sector specific tailwinds over the coming years. Reflecting this confidence, the team has increased its investment in the strategy — a clear signal of our optimism about the future of our portfolio companies and the opportunities ahead in emerging markets which we intend to capitalise on.
We were delighted to host our annual Investor Day in London on Tuesday, 23 September 2025, bringing together investors and portfolio companies for a day of discussion and insights. For those who couldn’t attend, please find the full recording below.
Highlights included insightful presentations from CarTrade, an Indian multi-channel auto platform provider, and TOTVS, a Brazilian software provider. CarTrade and TOTVS presented their respective businesses, provided an outlook for the coming years, spoke about their engagement with the MCP team, and showcased their innovation and structural growth within their respective industries.
This year’s key takeaways highlight favourable conditions for our portfolio looking forward, including easing tariff uncertainty, declining US interest rates, strengthening emerging market currencies, and accelerating investment in AI and technology supply chains. Additionally, strong results and constructive outlooks from many of our holdings should position them well beyond 2025.
Over the past 15 years since the Global Financial Crisis, the United States Dollar (USD) has strengthened significantly, particularly against emerging market currencies, leading to widespread undervaluation compared to historical averages. Many 2025 market outlooks anticipated further USD gains, driven by so-called Trump Trades, with investors expecting sectors that benefit from tax cuts, deregulation, and protectionism to outperform.
However, these market forecasts were soon proven wrong as Trump’s erratic policies regarding tariffs has resulted in the weakening of the USD this year, giving rise to doubts about its continued long-term strength. At MCP, we believe the undervaluation of EM currencies compared to the USD presents attractive opportunities for investors.
What Does EM Currency Undervaluation Mean for Investors?
EM currency undervaluation provides key investment opportunities to capitalise on additional sources of alpha when the currencies re-rate and gain ground; a trend that has gained momentum this year. Brazil is a key example – the Brazilian Real (BRL) has appreciated 10% against the USD YTD as of the 31 July – a welcome contrast to the BRL’s 27% depreciation in 2024. Key drivers behind the Real’s appreciation include improving fiscal conditions, positive economic data, and successive hikes in its benchmark interest rate (the Selic), which currently stands at 15%, helping to stabilise inflation expectations.
While currencies can present opportunities for additional sources of alpha, we are conscious that they can also become significant detractor to returns. That is why currency risk will always remain a key consideration in our vigorous macro-overlays. Additionally, while we do not invest based solely on currency attractiveness, it can contribute to the broader investment case for a high-quality, attractively valued stock.
In countries with more vulnerable currencies, we mitigate risk by focusing on companies with diversified currency exposure. We particularly favour exporters generating revenue in hard currencies. For example, CI&T is a software company based in Brazil which caters to the US market, generating more revenue in USD than in real, while in Turkey, Hitit, an airline and travel IT Solution provider, generates 65% of its revenues in USD and 13% in EUR.
So how undervalued are EM currencies?
There are several factors suggesting that that emerging market currencies may be due for a reversal in their long-standing depreciation trend, a view increasingly supported by foreign exchange movements this year.
Firstly, the USD ended 2024 at two standard deviations above its 50-year average. Given the cyclical nature of currency markets, this suggests limited room for further appreciation[1]. In 2025 so far, the dollar has already retreated from its post-election highs, as market sentiment has turned increasingly negative towards Trump’s policies, fuelling concerns about a revival in inflation. This, coupled with an increasing fiscal deficit and mounting federal debt, has caused investor confidence in the US economy to decline.
USD Spot Index YTD
Source: Bloomberg, as of 31 July 2025.
The long-standing narrative of ‘American Exceptionalism’ that has driven US equity market dominance in recent years is beginning to unwind. In response, capital is increasingly shifting toward more globally diversified asset classes. Notably, emerging market portfolio inflows reached $42.8 bn in June according to data from the Institute of International Finance.
Should Trump’s erratic and inflationary policies continue, this erosion of trust in US institutions could become more permanent. Signs of this shift are already emerging, demonstrated by Moody’s downgrade of the US credit rating from AAA to Aa1 due to concerns around US debt.
EM Debt has Remained Steady This Decade Compared to Soaring US Debt
Source: Ninety One, October 2024.
Many Emerging Markets Have Healthier Debt-to-GDP Ratios than the US
Source: IMF, April 2025. Percentages indicate general government gross debt as percent of GDP.
Globally, countries appear to want to move in only one direction: away from economic dependence on the US, including reducing their reliance on the US dollar. This is evident in the growing efforts of many countries to settle a larger share of their trade in domestic currencies. For example, in 2022 the Reserve Bank of India set up a trade mechanism to facilitate bilateral trade in Indian Rupee.
Adding further support to potential EM currency appreciations, global interest rates are on a downward trajectory. Although Trump’s policies may slow the pace of Fed rate cuts—despite his clear preference for looser monetary policy—the structural trend remains intact. Historically, a declining rate environment has supported EM currencies, given their inverse correlation with the USD. Lower US rates reduce the burden of dollar-denominated debt, easing external financing conditions for emerging markets.
Meanwhile, if EMs manage their own inflation effectively and maintain credible monetary policies, their currencies should strengthen as investor confidence shifts toward higher-yielding and well-managed EM economies. Notably, some of the strongest EM currency performers this year include the Brazilian real, Taiwanese dollar, South Korean won, and Malaysian ringgit.
We do not expect EM currency appreciation to occur uniformly across all EMs as each is shaped by its own unique mix of internal and external pressures. However, in cases where currencies do appreciate—especially those supported by strong structural reforms and credible institutions—the outcome can be meaningful alpha generation, as illustrated by Brazil this year.
Throughout the past quarter—and indeed the entire year—we have experienced significant market volatility, driven in large part by shifting U.S. trade policies under the Trump administration, which have fuelled considerable uncertainty. Volatility peaked following the 2 April announcement of extraordinarily high, sweeping ‘reciprocal’ tariffs. This announcement shocked global markets, triggering sharp selloffs with some of the steepest price movements in decades. The subsequent pause of the tariffs to 9 July seemed only to confirm the erratic nature of U.S. policies, a sentiment further validated by the recent extension to 1 August.
Meanwhile, geopolitical tensions—including the ongoing war in the Ukraine and the escalating conflict in the Middle East—have added further layers of complexity to the global macro environment. Several emerging markets have faced their own significant challenges: India experienced a sharp market downturn in January and February; South Korea continued to navigate political instability following last year’s failed attempt to impose martial law; and Turkey came under renewed pressure after the arrest of President Erdogan’s main opposition leader. Finally, the surprise release of the Chinese chatbot DeepSeek introduced unexpected competitive dynamics in the global AI landscape, further unsettling investor sentiment.
Smaller, high-quality companies, particularly in the technology sector, were disproportionately affected by the uncertainty as investors fled to safe heaven assets like gold but also to the larger, more liquid names deemed to be less risky. Furthermore, amidst the volatility, we observed a market rotation into sectors such as banks and commodities. These areas, which we deliberately exclude from the portfolio due to their regulatory complexity, capital intensity, and limited pricing power, had already been trading at low valuations and therefore proved more resilient during recent market corrections.
Our portfolio is benchmark-agnostic, with an active share close to 100%, reflecting our high-conviction, bottom-up stock selection. While this naturally leads to periods of return divergence against the broader market, we believe it positions us well to deliver meaningful long-term outperformance.
We’ve navigated challenging periods before, such as in 2019 and 2022, and in both instances, the fund went on to deliver strong (out-)performance in the years that followed. As the dislocation begins to correct, MEMF’s NAV has started to recover, delivering 11.8% (Private C Founder USD) and 2.7% (Private C Founder EUR) terms over the quarter. Since inception, the fund has delivered a return of 49% (Private C Founder USD).
We viewed the recent market pullback as an opportunity to further strengthen the portfolio. We selectively added high-conviction names from our watchlist, taking advantage of attractive valuations and temporary dislocations. Active portfolio management has remained central to our day-to-day work: we trimmed or exited positions where, in our view, the macro environment had materially weakened the investment case and redeployed capital into more compelling opportunities. At the same time, we increased exposure to several high-conviction holdings that had been unfairly impacted by broader market sentiment. Encouragingly, many of our portfolio companies delivered strong Q1 results, with several beating expectations and issuing positive forward guidance, despite ongoing uncertainty.
Strong Q1 Results, Optimistic Outlook for 2025 & Beyond
Source: MCP, Bloomberg, company source. Figures refer to past performance. Past performance is not a guide to future performance.
Our extensive on-the-ground research this year—spanning visits to Taiwan, India and Korea—provided valuable insight and generated a number of promising new ideas. India stands out as a particularly strong focus for us. We took advantage of market weakness earlier this year to add undervalued names, supported by an improving macro backdrop that includes rate cuts, easing inflation, and increased liquidity in the banking sector.
Economic Indicators Point to Continued Recovery in India
In Korea, the outcome of the 3 June elections brought political stability, which has boosted stock performance. The new government is pursuing a broad agenda of market-friendly reforms, not only to tackle the longstanding ‘Korea discount’, but also to enhance overall corporate governance, capital efficiency, and investor confidence. As a result, new opportunities are emerging, particularly in the technology sector. Brazil has also remained on our radar, with compellingly low valuations, improving macro fundamentals, and a strengthening real contributing to a more constructive outlook.
From a sector perspective, we have been active as well. In health care, we began reducing our position in Korean medical aesthetics company Classys after realising significant profits over the course of the holding period. In industrials, we added to APL Apollo and bought KEI Industries in India to capitalise on Indian infra and energy capex demands.
In consumer discretionary, we added CarTrade given its dominant position in car classifieds in India catering towards local consumption growth. We remain bullish on the technology sector; however, the composition of our tech holdings has been thoughtfully realigned to reflect our evolving views amid current macroeconomic challenges, broader market trends, and shifting IT spending priorities.
Country/Sector Allocation Changes YTD
Source: Bloomberg, MCP. MEMF (December): as of 31 December 2024. MEMF (June): as of 30 June 2025.
After the ‘DeepSeek scare’—when a Chinese artificial intelligence start-up launched a high-performing model at lower cost—first-quarter results from Amazon and Alphabet confirmed strong momentum in artificial intelligence investment. Businesses are rapidly shifting to artificial intelligence-driven models, requiring continued large-scale investment in computing infrastructure.
Encouragingly, many of our portfolio companies in the technology sector echoed this trend in their Q1 earnings reports, providing constructive guidance for the year ahead and pointing to an emerging rebound in demand, driven by renewed strength in AI-related spending.
For example, Chroma, a Taiwanese supplier of testing equipment, beat Bloomberg earnings consensus by 48% driven by a 11% increase in operating margin year-on-year, and a 55% year-on-year revenue growth. Demand for Chroma’s power testers was supported by China’s aggressive AI datacentre build out, and the company’s outlook remains constructive for the rest of the year as it is entering a leading foundry’s packaging supply chain with a customised metrology tool.
Meanwhile, Elite Material (EMC), the global leader in high-speed copper-clad laminates (CCLs), reported earnings 7% ahead of Bloomberg consensus. EMC’s tailwinds came from strong demand for higher-priced CCLs, predominantly used in Application-Specific Integrated Circuit (ASIC) servers, which drove a 70% YoY bottom line acceleration. The reaffirmation of US hyperscalers’ (the end customers for AI servers) capex plans has reinforced EMC’s positive outlook.
The careful refinement of the portfolio has culminated in a deliberate and focused consolidation into 29 high-conviction holdings—companies we believe are best positioned to deliver sustainable, long-term growth. This portfolio is testament to our continued focus on high-quality businesses with deep moats and a strong orientation toward innovation. Throughout periods of market volatility, we have remained disciplined and patient, staying true to our convictions and executing the strategy we set out.
While we monitor macroeconomic developments closely, we adjust our positioning only when we believe such shifts materially affect a company’s long-term investment case. Underscoring our confidence in the strategy, the team increased its own commitment to the fund during the recent market pullback—demonstrating strong alignment with long-term shareholders. Much like the rebounds that followed challenging periods in 2019 and 2022, we view 2025 in a similar light. With improving visibility into the remainder of the year, we believe there is good potential for continued recovery, despite ongoing volatility and near-term challenges.
Outlook
Looking ahead, U.S. trade policies continue to inject a persistent sense of uncertainty and volatility into the economic outlook for the coming months. The initial 90-day reciprocal tariff pause—subsequently extended by an additional month—was designed to create space for the U.S. to negotiate new trade agreements. Yet, progress has been limited. To date, only the United Kingdom, Vietnam, Indonesia and China – though limited in scope – have reached accords, highlighting the limited effectiveness of a strategy centred around economic pressure.
We continue to monitor the potential impact of heightened tariffs on our portfolio. However, direct exposure seems to be modest. Firstly, a large portion of our technology exposure is based in the software-as-a-service industry, and as services, these are not subject to tariffs.
Secondly, our remaining tech holdings, primarily in the semiconductor and hardware sectors, which are largely currently exempt from tariffs, generate only a limited share of their direct revenue from the U.S. market.
Thirdly, we favour business models oriented towards domestic consumption in select geographies, such as India, which similarly have minimal direct exposure to the U.S. Nonetheless, we continuously monitor the potential broader impact of the seemingly erratic U.S. policies on our portfolio.
Source: Bloomberg, MCP. As of 30 June 2025. Revenue data for FY2024.
MEMF Tech Holdings Show Low Direct Exposure to the U.S.
Source: Bloomberg, MCP. As of 30 June 2025. Revenue data for FY2024. Actual exposure through direct shipments is significantly lower than revenue exposure (e.g., Taiwan equipment maker shipping to OSATs and receiving revenue from US customer).
More broadly, the U.S. may be absorbing greater-than-expected fallout: rising inflation, weaker growth and confidence, and a softening dollar suggest a reversal in the decade-long USD strength—potentially a tailwind for emerging markets. With EM inflows rebounding ($19.2bn in May, tracked by the Institute of International Finance (IIF)), and a shift away from concentrated U.S. exposure, we believe our portfolio is well positioned to benefit.
Throughout the past quarter—and indeed the entire year—we have experienced significant market volatility, driven in large part by shifting U.S. trade policies under the Trump administration, which have fuelled considerable uncertainty. Volatility peaked following the 2 April announcement of extraordinarily high, sweeping ‘reciprocal’ tariffs. This announcement shocked global markets, triggering sharp selloffs with some of the steepest price movements in decades. The subsequent pause of the tariffs to 9 July seemed only to confirm the erratic nature of U.S. policies, a sentiment further validated by the recent extension to 1 August.
Meanwhile, geopolitical tensions—including the ongoing war in the Ukraine and the escalating conflict in the Middle East—have added further layers of complexity to the global macro environment. Several emerging markets have faced their own significant challenges: India experienced a sharp market downturn in January and February; South Korea continued to navigate political instability following last year’s failed attempt to impose martial law; and Turkey came under renewed pressure after the arrest of President Erdogan’s main opposition leader. Finally, the surprise release of the Chinese chatbot DeepSeek introduced unexpected competitive dynamics in the global AI landscape, further unsettling investor sentiment.
Smaller, high-quality companies, particularly in the technology sector, were disproportionately affected by the uncertainty as investors fled to safe heaven assets like gold but also to the larger, more liquid names deemed to be less risky. Furthermore, amidst the volatility, we observed a market rotation into sectors such as banks and commodities. These areas, which we deliberately exclude from the portfolio due to their regulatory complexity, capital intensity, and limited pricing power, had already been trading at low valuations and therefore proved more resilient during recent market corrections.
Our portfolio is benchmark-agnostic, with an active share close to 100%, reflecting our high-conviction, bottom-up stock selection. While this naturally leads to periods of return divergence against the broader market, we believe it positions us well to deliver meaningful long-term outperformance for investors. We’ve navigated challenging periods before, such as in 2019 and 2022, and in both instances, the trust went on to deliver strong (out-)performance in the years that followed. As the dislocation begins to correct, MMIT’s NAV and share price have started to recover, delivering 6.5% and 5.2% in GBP terms over the quarter. Since inception, the trust has delivered a NAV return of 54.8%.
MMIT is one of the Leading EM Trusts Over the Past 5 Years*
Source: Bloomberg, Frostrow, MMIT, rebased. As of 30 June 2025.
We viewed the recent market pullback as an opportunity to further strengthen the portfolio. We selectively added high-conviction names from our watchlist, taking advantage of attractive valuations and temporary dislocations. Active portfolio management has remained central to our day-to-day work: we trimmed or exited positions where, in our view, the macro environment had materially weakened the investment case and redeployed capital into more compelling opportunities. At the same time, we increased exposure to several high-conviction holdings that had been unfairly impacted by broader market sentiment.
Encouragingly, many of our portfolio companies delivered strong Q1 results, with several beating expectations and issuing positive forward guidance, despite ongoing uncertainty.
Strong Q1 Results, Optimistic Outlook for 2025 & Beyond
Source: MCP, Bloomberg, company source. Figures refer to past performance. Past performance is not a guide to future performance.
Our extensive on-the-ground research this year—spanning visits to Taiwan, India and Korea—provided valuable insight and generated a number of promising new ideas. India stands out as a particularly strong focus for us. We took advantage of market weakness earlier this year to add undervalued names, supported by an improving macro backdrop that includes rate cuts, easing inflation, and increased liquidity in the banking sector.
Economic Indicators Point to Continued Recovery in India
In Korea, the outcome of the 3 June elections brought political stability, which has boosted stock performance. The new government is pursuing a broad agenda of market-friendly reforms, not only to tackle the longstanding ‘Korea discount’, but also to enhance overall corporate governance, capital efficiency, and investor confidence. As a result, new opportunities are emerging, particularly in the technology sector. Brazil has also remained on our radar, with compellingly low valuations, improving macro fundamentals, and a strengthening real contributing to a more constructive outlook.
From a sector perspective, we have been active as well. In health care, we began reducing our position in Korean medical aesthetics company Classys after realising significant profits over the course of the holding period. In industrials, we added to APL Apollo and bought KEI Industries in India to capitalise on Indian infra and energy capex demands.
In consumer discretionary, we added CarTrade given its dominant position in car classifieds in India catering towards local consumption growth. We remain bullish on the technology sector; however, the composition of our tech holdings has been thoughtfully realigned to reflect our evolving views amid current macroeconomic challenges, broader market trends, and shifting IT spending priorities.
Following the ‘DeepSeek scare’ —when Chinese AI start-up DeepSeek introduced a large language model (LLM) with performance on par with Western counterparts but developed at significantly lower cost—Q1 results from hyperscale cloud providers such as Amazon and Alphabet reaffirmed the robust momentum of AI-related investment. The reality remains that businesses globally are accelerating their transition toward AI-driven models, necessitating sustained, large-scale investment in compute infrastructure. Encouragingly, many of our portfolio companies in the technology sector echoed this trend in their Q1 earnings reports, providing constructive guidance for the year ahead and pointing to an emerging rebound in demand, driven by renewed strength in AI-related spending.
For example, Chroma, a Taiwanese supplier of testing equipment, beat Bloomberg earnings consensus by 48% driven by a 11% increase in operating margin year-on-year, and a 55% year-on-year revenue growth. Demand for Chroma’s power testers was supported by China’s aggressive AI datacentre build out, and the company’s outlook remains constructive for the rest of the year as it is entering a leading foundry’s packaging supply chain with a customised metrology tool.
Meanwhile, Elite Material (EMC), the global leader in high-speed copper-clad laminates (CCLs), reported earnings 7% ahead of Bloomberg consensus. EMC’s tailwinds came from strong demand for higher-priced CCLs, predominantly used in Application-Specific Integrated Circuit (ASIC) servers, which drove a 70% YoY bottom line acceleration. The reaffirmation of US hyperscalers’ (the end customers for AI servers) capex plans has reinforced EMC’s positive outlook.
The careful refinement of the portfolio has culminated in a deliberate and focused consolidation into 25 high-conviction holdings—companies we believe are best positioned to deliver sustainable, long-term growth. This portfolio is testament to our continued focus on high-quality businesses with deep moats and a strong orientation toward innovation (see section on top holdings below). Throughout periods of market volatility, we have remained disciplined and patient, staying true to our convictions and consistently executing the strategy we set out.
While we monitor macroeconomic developments closely, we adjust our positioning only when we believe such shifts materially affect a company’s long-term investment case. Underscoring our confidence in the strategy, the investment team increased its own commitment to the trust during the recent market pullback—demonstrating strong alignment with long-term shareholders. Much like the rebounds that followed challenging periods in 2019 and 2022, we view 2025 in a similar light. With improving visibility into the remainder of the year, we believe there is good potential for continued recovery, despite ongoing volatility and near-term challenges.
Outlook
Looking ahead, U.S. trade policies continue to inject a persistent sense of uncertainty and volatility into the economic outlook for the coming months. The initial 90-day reciprocal tariff pause—subsequently extended by an additional month—was designed to create space for the U.S. to negotiate new trade agreements. Yet, progress has been limited. To date, only the United Kingdom, Vietnam, Indonesia and China – though limited in scope – have reached accords, highlighting the limited effectiveness of a strategy centred around economic pressure.
We continue to monitor the potential impact of heightened tariffs on our portfolio. However, direct exposure seems to be modest. Firstly, a large portion of our technology exposure is based in the software-as-a-service industry, and as services, these are not subject to tariffs.
Secondly, our remaining tech holdings, primarily in the semiconductor and hardware sectors, which are largely currently exempt from tariffs, generate only a limited share of their direct revenue from the U.S. market.
Thirdly, we favour business models oriented towards domestic consumption in select geographies, such as India, which similarly have minimal direct exposure to the U.S. Nonetheless, we continuously monitor the potential broader impact of the seemingly erratic U.S. policies on our portfolio.
Source: Bloomberg, MCP. As of 30 June 2025. Revenue data for FY2024.
MMIT Tech Holdings Show Low Direct Exposure to the U.S.
Source: Bloomberg, MCP. As of 30 June 2025. Revenue data for FY2024. Actual exposure through direct shipments is significantly lower than revenue exposure (e.g., Taiwan equipment maker shipping to OSATs and receiving revenue from US customer).
More broadly, the U.S. may be absorbing greater-than-expected fallout: rising inflation, weaker growth and confidence, and a softening dollar suggest a reversal in the decade-long USD strength—potentially a tailwind for emerging markets. With EM inflows rebounding ($19.2bn in May, tracked by the Institute of International Finance (IIF)), and a shift away from concentrated U.S. exposure, we believe our portfolio is well positioned to benefit.
* The Company has selected the following eight companies from the AIC’s Global Emerging Markets sector to form its peer group. These were chosen based on alignment with the Company’s own investment universe, excluding a small number of regionally focused trusts with narrower mandates. The selected peers are: Ashoka WhiteOak Emerging Markets (not in graph above as no 5 year track record), Barings Emerging EMEA Opportunities, Fidelity Emerging Markets Limited, BlackRock Frontiers Investment Trust, JP Morgan Emerging Markets Investment Trust, JP Morgan Global Emerging Markets Income Trust, Templeton Emerging Markets Investment Trust, and Utilico Emerging Markets Trust.
Last February, we published an article outlining South Korea’s newly announced Value Up Program introduced by the Financial Services Commission (FSC) together with the Korea Exchange (KRX). The program was designed to tackle the ‘Korea Discount’, whereby Korean equities trade at significantly lower valuations than to their global counterparts.
At the time of writing, the program’s specifics were limited. It was understood that it would comprise a set of voluntary guidelines encouraging companies to devise mid- to long-term targets to increase shareholder value. Companies participating in the program would receive substantial financial incentives. In addition, companies with a proven track record of profitability or those that were expected to boost valuations would be included in the upcoming Korea Value-up Index, with ETFs tracking the Index to be launched in Q4 2024. In fact, all four of our Korean holdings have been included in the Index.
Despite the program’s ambitious aims, initial reactions were cautious, with concerns raised about the lack of detail, particularly regarding the unspecified tax incentives that the FSC emphasised as a key reason to participate. In response, the FSC promised to release more concrete guidelines by June 2024.
A year on from the program’s launch, we believe it is timely to revisit the initiative to shed light on the more detailed framework that has since been released and to offer an assessment of its early successes and failures.
What Further Details Have Been Released?
The Corporate Value Up Program:
In May 2024, the FSC released their guidelines for the Value Up Program, which were published in full on their website in August. The guidelines recommend that companies’ Value Up plans include information from six key categories.
1. Company overview
Corporate information should be specified to provide a comprehensive description of the company, including business sectors, major products and services and company history.
2. Current status analysis:
Companies should disclose the most relevant financial indicators for medium- to long-term value improvement specific to their industry. These may include price-to-book ratio (PBR), price-to-earnings ratio (PER), return on equity (ROE), return on invested capital (ROIC), dividend payout ratio, shareholder return ratio, revenue growth, and so on. In addition, non-financial indicators, most significantly those related to corporate governance, are encouraged to be disclosed.
3. Goal setting:
Companies should set goals for improving their disclosed metrics to enhance corporate value in the medium- to long-term. These goals may include expanding R&D, investing in human and physical resources, efforts to increase shareholder returns, such as the cancellation of treasury stocks, and so on.
4. Planning:
Detailed plans should be submitted regarding how these goals will be achieved.
5. Implementation evaluation:
It is recommended that plans are submitted once a year, alongside a review of the previous year’s achievements.
6. Communication:
Companies should submit a report on the status, plans and performance of their communication, including quantitative methods for promoting effective communication, such as English translations of their Value Up plan.
The KRX commenced its first Corporate Value-up Award Program on 27 May, recognising and awarding companies with notable value-up achievements. In a prior press release the FSC stated that awarded companies will be eligible to receive (a) an exemption from the external auditor designation requirement, (b) a mitigation in penalties resulting from an audit review, (c) an exemption from KRX listing fees and annual dues, (d) an exemption from fees related to making changes to KRX listing status, and (e) a six-month postponement of sanctions resulting from dishonest disclosure.
The KRX plans to provide a range of services to support companies’ voluntary disclosures. These services will include disclosure-related training, providing information on the program to internal and external company directors, and offering one-to-one consulting services to support small and medium-sized businesses that may lack the human resources and physical infrastructure to develop and disclose their Value-up Plans independently. According to the KRX, it provided this consultation service to 55 companies in 2024, including nine from the KOSPI and 46 from the smaller KOSDAQ Index. The KRX plans to increase the number of consultations in 2025, offering the service to 50 KOSPI and 70 KOSDAQ companies. Priority will be given to companies that plan to participate in the Value Up Program.
The Korea Value Up Index:
Details of the Korea Value-up Index were released in September 2024, with ETFs tracking the index becoming live in December. The index comprises 105 companies listed on the KOSPI or the KOSDAQ, with the majority listed on the former. The Index is intended to serve as a benchmark for pension funds and institutional investors to help them identify companies with higher shareholder value.
Selection for the Index is based on criteria such as profitability and shareholder return, including dividends, share buybacks, price-to-book ratio and return on equity. Moreover, the KRX has adopted a relative evaluation method in order to account for differences across industry characteristics thereby ensuring sectorial balance.
The Korea Exchange announced the first rebalance of the Index on 27 May 2025, adding 27 new stocks and removing 32. Changes reflect the preferential inclusion of companies actively disclosing Value-Up plans and the removal of those that have undertaken actions which may have harmed shareholder value or are not in line with the policies of the Value Up Program. The actual rebalancing was implemented on 13 June. We are pleased to announce that all four of our Korean holdings have retained their place on the Index, reflecting their commitment to high shareholder return and strong corporate governance in line with the goals of the Value Up Program.
Source: Bloomberg; as of 4 June 2025.
What are the Program’s Early Successes?
So, what—if anything—has the Value Up Program achieved in its first year? According to the FSC and the KRX, 125 companies had officially disclosed their Value Up Plans by the end of March 2025. While this represents only 5.1% of all listed firms on the KOSPI and KOSDAQ, these companies together account for 46.1% of total market capitalisation[1]. The Korean business news outlet, Chosun Biz, reported that, encouragingly, between the second quarter of 2024 and the first quarter of 2025, listed companies repurchased 22.88 trillion won worth of shares, a 2.4x YoY increase. Stock cancellations reached 19.59 trillion won, up 2.3x YoY, while cash dividends rose by 11% to a total of 48.35 trillion won. These developments suggest that early adoption of the program may already have translated into tangible changes in corporate behaviour.
Although the number of participating companies remains relatively low, momentum is said to be building as major Korean conglomerates, known as ‘chaebols’, begin to show increased interest. Hyundai Motor has already announced new targets for total shareholder return and share buybacks as part of its commitment to the initiative. LG and Posco are expected to join the program too. The Financial Times reported Jeong Eun-bo’s, Chief Executive of the KRX, argument that once Korea’s largest companies join the program, over time, it will encourage other companies to join due to Korea’s strong naming and shaming culture.
Additionally, Kim Byoung-hwan, Chairman of the FSC, has stressed that the program’s effectiveness should be evaluated in the long-term, acknowledging that shifts in corporate culture, particularly those involving governance and capital allocation, are always gradual. We share this view: the Value Up Program is a long-term structural reform initiative, designed with a decades-long horizon in mind. Japan’s own corporate reform efforts, which started over a decade ago and have only recently begun to bear fruit, demonstrate that such deep-rooted changes require a long-term strategy and perspective.
What are the Program’s Early Shortcomings?
The main criticism of the program is that it is voluntary. While 125 companies have joined, some argue that this figure is underwhelming. Whether this level of participation is significant or not ultimately depends on one’s perspective, but it is clear that the number would be higher with more enforceable guidelines or legislative obligations. Given the seriousness of the ‘Korea discount’, including the fact that the National Pension Fund is projected to be depleted by the 2050s due in part to the low valuation and growth of domestic stocks, the program’s non-compulsory nature seems misaligned with the scale of the problem. From this standpoint, many argue that the program should be mandatory to ensure companies are held accountable for delivering shareholder value and improving market efficiency.
Critics also highlight that the program falls short of addressing deep-rooted structural issues in Korea’s corporate environment. With inheritance tax rates as high as 50–60%, families are incentivised to suppress corporate valuations to mitigate future tax burdens on the next generation. Furthermore, the program does not prevent the opaque and complex cross-holding structures that many large Korean conglomerates rely on to maintain majority control, which in turn allow the interests of minority shareholders to be disregarded. Therefore, even if the program raises valuations to some extent, it is not until the conflicts of interests between the large corporations’ self-interests verses boosting shareholder value are aligned that the ‘Korea discount’ can truly be tackled for good.
What is the Future of the Program?
As it stands, the FSC has no plans to transition the initiative from a voluntary framework to an enforced one. This means that the program’s long-term success will depend on whether more companies choose to participate willingly. In turn, this will likely require additional regulatory activity and structural reforms to overcome entrenched disincentives.
The direction of the program may be significantly influenced by political developments. Following the impeachment of President Yoon Suk Yeol, resulting from his failed attempt to impose martial law, early elections were held on 3 June 2025 with Lee Jae-myung of the Democratic Korea Party (DKP) winning the election.
Lee has publicly committed to addressing abuses by controlling shareholders and promoting better governance in support of the Value Up Program. Notably, in March 2025, the DKP succeeded in pushing through a revision to the Commercial Act, aimed at expanding the fiduciary duties of board members. The revised law would require directors not only to act in the company’s interest but also to protect minority shareholders and promote board independence. However, the PPP under acting president Han Duck-soo vetoed the amendment on the basis of over regulation. While this has blocked the amendment, the DKP’s clear willingness to push through such reforms demonstrates a strong commitment to structural change and addressing corporate governance issues. Furthermore, with the DKP now in power, the legislation could be revived.
By following the regulations the new government prioritises during their initial period in office, we will soon have a better idea of the future of the Value Up Program. We will continue to closely monitor these developments, as well as any other relevant regulatory changes within Korea’s political landscape. Nevertheless, we believe that the Value Up Program is an important starting point for the country’s development towards higher valuations and better corporate governance. At the very least, the program has sparked conversations and drawn attention to these structural issues, which require the attention of both the corporate and political leaders of Korea for the long-term health of the country and its market.
