East Capital Global Emerging Markets ex China

This is the first newsletter following the fund’s launch on 13 August 2025.  Given our country neutral approach in emerging markets, the fund is essentially a carve-out of our broader emerging markets fund, excluding the Chinese names. It has been a strong start on both an absolute and relative basis, with our fund returning 14,6% since launch, 1.7% above the benchmark, which returned 12.9%.  The main drivers of performance on both a relative and absolute basis were Korea and Taiwan, which were boosted by AI-names as global investors sought more reasonably priced alternatives to the expensive US AI names. 

Korea was the top-performing market, with the MSCI Korea Index returning over 100% during the year, while the broader, and more diversified KOSPI Index gained 83%. This was mainly driven by the large memory stocks in the index: Samsung and SK Hynix returned 130% and 278%, respectively. Since inception, SK Hynix has been one of the largest names in the fund, reflecting our strong conviction in the memory cycle. Essentially, demand for memory from AI data centres is vastly outstripping potential supply, not to mention the additional demand from other sources such as computers and phones. As a result, these companies have been able to consistently raise prices for their memory chips. Consensus currently expects SK Hynix to increase server DRAM prices by 60-70% quarter-on-quarter in Q1 2026. This is driving a wave of earnings upgrades and leaving these stocks attractively valued. SK Hynix is currently trading at a 8.4x P/E for 2026, compared to Nvidia’s 21.4x P/E, despite comparable earnings growth and margins. We believe these earnings upgrades will continue and therefore see memory names will remain a key theme for us in 2026. We also invested in SK Square, the owner of SK Hynix, which was trading at a 60% discount to its stake in Hynix, though it has ambitious plans to reduce this discount. We met the management team of SK Square in Stockholm to discuss these plans, which we followed up with a letter before meeting the team on the ground in Korea. To some extent, these plans have been reflected in the price, with the discount falling to 50%.  

India took a breather in 2025, returning just 4% for the year. This was driven by a combination of factors, including challenging geopolitics, a cyclical slowdown, elevated valuations and limited AI exposure. However, it was positive on a relative basis for us, particularly in Q4 as Mitsubishi UFJ Financial Group announced that it would acquire a 20% stake in our largest Indian holding, Shriram Finance, for USD 4.4 billion, marking the largest ever international investment in an Indian financial services company. We liked the company due to its attractive valuation at 1.6x P/B, compared to 3.0x for larger banks. We expected a cyclical upswing in lending volumes and risk costs as rates fell, which we felt wasn’t priced in by consensus. Our view was, of course, reinforced by the Mitsubishi transaction, which helped propel the stock to a 68% return during the year, generating significant alpha, while India was broadly flat. 

The fourth quarter was a busy time for travel, with the team on the ground in Korea, Dubai, India and the Czech Republic. In India, we spent the first two days touring the production sites of two of our holdings, Continental Coffee and Jain Resources, in Chennai. Continental Coffee is one of the world’s leading instant coffee producers and is a prime example of the kind of structural growth we seek. On average, Indians consume just 30 cups of coffee per year, compared to a global average of 200 cups. Currently, Continental Coffee is covered by only two small local brokers, but we expect this to change given its strong, clearly undervalued growth. We plan to meet with the management team in Q1 to discuss this and to advocate for increased investor outreach activities.  

For 2026, in short, we believe that investors will continue to seek opportunities outside of the expensive and highly concentrated US equity markets which have dominated for many years. We believe that emerging markets present a compelling option, offering higher earnings growth and significantly lower valuations than developed markets, with 18% EPS growth and a PEG ratio of 0.8x for 2026-27 versus 16% and 1.5x for the S&P 500. For more details about our expectations for 2026, we would suggest to read our 2026 Outlook. 

Most importantly, despite these arguments, global investors remain lightly positioned, with emerging market allocations at around 5% compared to 11% in ACWI, leaving ample room for capital inflows that could further boost returns. The high volume of meetings we have had in the last quarter suggests that investors are doing their homework, though they have not yet started to allocate more meaningfully to emerging markets, something we believe could change in 2026. 

Our fund trades at a12.0x P/E for 2026, with an expected earnings growth of 22%, compared to the benchmark (MSCI Emerging Markets ex-China 10-40), which trades at a16.2x P/E and has a 16% expected earnings growth rate.  

Performance in USD net of fees.

This publication is not directed at you if we are prohibited by any law in any jurisdiction from making this information available to you and is not intended for any use that would be contrary to local laws or regulations. Every effort has been made to ensure the accuracy of the information in this document, but it may be based on unaudited or unverified figures or sources. The information in this document should not be used as the sole basis for an investment. Please read the Prospectus and the KID, which are available on the fund page.