Emerging Markets Discovery Equity Fund

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Overview

Manager's Outlook

We believe that EMs are structurally stronger than in the past and will benefit from increased capital expenditure from corporates, which have in recent years largely been spending on maintenance and which now need to ramp up investment spending for expansion. EMs will also likely benefit from the green energy transition as there is greater focus on environmental protection and the need to offset climate change. This in turn is expected to yield many investment opportunities in traditional or "forgotten" sectors. We think this could be the start of a multi-year investment and capital expenditure cycle as companies have been underinvesting while heightened geopolitical tensions could trigger a change in global supply chains to increase their resilience.

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This favourable economic backdrop should continue to support a "Value" investment style change in emerging markets, in our view. We think the recent outperformance of value stocks over growth stocks is a sustainable trend given that the valuation gap between the two styles remains wide by historical standards.

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In China, where the portfolio has the largest exposure, the regulatory cycle is cyclical in nature and is approaching an inflexion point. As the cycle fades, we see support emerging from stimulus policies and easing of restrictions. However, such incremental support will likely be selective and will only target certain sectors. An unanticipated slowdown in China is a key risk, but underinvestment in recent years should present an opportunity for traditional industries.

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We believe there are ample opportunities in EM for us to identify pockets of "forgotten" stocks with asymmetrical risk-return profiles, where fundamental changes or operational improvements may drive a re-rating, with potential downside support from solid balance sheets and/or healthy dividends. The portfolio is designed to take advantage of an expanded and evolving universe of "forgotten stocks" in EM that we believe are under-owned and under-researched by mainstream investors and which have asymmetrical risk-return profiles and positive self-help stories. We think these businesses are poised for positive fundamental change or operational improvements that should lead to higher valuations over time.

Strategy

Fund Summary

We look for signs of positive fundamental change among stable, but unloved, businesses that we believe are facing unwarranted scepticism from investors. Meeting company management is central to our approach, as we aim to identify quality teams with strategic vision, a roadmap for success and the ability to execute. The promotion of environmental and/or social characteristics is achieved through the fund's commitment to maintain at least 10% of the value of its portfolio invested in Sustainable Investments, as defined by the SFDR. Additionally, we apply a proprietary responsible screen (exclusion list). The manager is not constrained by the fund’s benchmark, which is used for performance comparison purposes only.

Performance - Net of Fees

Past performance is not a reliable indicator of future performance.

30-Apr-2024 - Ernest Yeung, Portfolio Manager,

Emerging market equities rose in April due to improving sentiment towards China, which offset the impact of reduced expectations for US interest rate cuts and escalating geopolitical worries. Within the portfolio, stock selection in Brazil detracted. Our positions in an investment bank and a shopping centre developer hurt as their shares paused after the previous month’s double-digit gains. We continue to be impressed, however, by the investment bank’s consistency in terms of strategy and execution. We like the mall developer, which delivered solid first-quarter results, helped by cost control and non-core operations. Conversely, our stock picks in Mexico contributed to performance. In particular, our position in a mining conglomerate helped following positive first-quarter results. By sector, security selection in energy was negative, largely due to the underperformance of an oil equipment maker due its cautious short-term guidance. Being underweight communication services, which outperformed, also hurt the fund, alongside our lack of exposure to a Chinese internet giant that rallied. More positively, our positioning in the consumer sectors added value. The improving sentiment towards China and strong first-quarter results buoyed several of our consumer discretionary holdings there.

30-Jun-2022 - Ernest Yeung, Portfolio Manager,

We believe the portfolio is positioned to perform well in a global economy, which has entered a new stage of recovery. The shift towards core value sectors with our overweight positions in traditional economy stocks is leveraged to benefit from themes like higher capital expenditure and the green transition. While we continued our search for "forgotten" stocks with asymmetrical risk-reward and self-help profiles, we also avoided crowded trades like technology, preferring to focus on stocks that we think have been neglected by mainstream investors with the potential for a rerating.��

Real Estate

Real estate is one of our bigger sector overweight positions in the portfolio. While it is part of the "shift towards core value" thesis, our stock selection is also based on earnings improvement potential.

KE Holdings is one of China's largest property brokerage platforms. We bought more shares in the company as we feel it will gain market share due to its strong network and margin improvement as property sector activity recovers.
We bought shares in Brazilian mall developer Multiplan Empreendimentos, which we feel will see strong rental growth momentum as tenant sales gather pace. It has a healthy cash position, stable occupancy levels and good cost control, in our view.

Consumer Staples

The portfolio has a positive bias towards the consumer staples sector due to the non-cyclical nature of demand and its earnings consistency. In a rising rate environment, there is a lower likelihood of a sector re-rating than with higher-beta sectors, and we believe our stock selection will contribute positively. �

We bought shares in South Korean food company CJ Cheiljedang as we believe the company's shares will perform well in an inflationary environment.
Tingyi Holding is a leading food company in China. We purchased shares in the company as we believe its margins will improve as the current environment of commodity inflation will likely fade and following the launch of new premium products.

China

During the quarter, we found some opportunities in China, the portfolio's biggest allocation, as easing lockdown restrictions improved the business outlook. Even as some investors avoided investing in China, we were able to find good investment opportunities here.

We purchased shares in Weichai Power, a leading diesel and truck engine manufacturer in China. We believe the company stands to benefit from increasing capital expenditure in China as well as from relatively loose monetary conditions.
China Oilfield Services is one of the largest Chinese oil services companies. We bought shares in the company as we believe its future prospects are levered to the increase in oil and gas capital expenditures internationally.� ��
We increased our holding in Alibaba Group as we think that the market valuation of this e-commerce giant has priced in a pessimistic scenario. We see the stock benefiting from cost savings, a cyclical rebound, and improved capital allocation.

Financials

The financials sector remains one of our biggest sector allocations despite reducing our exposure during the quarter. We believe EM financials are set to play a crucial role in supporting corporate spending and green energy transition.

Ping An Insurance is one of the largest insurers in China. The environment has been challenging for the company amid lockdowns in major cities; we sold shares in the company as we believe we can find better opportunities elsewhere in the sector.
We sold shares of Brazilian bank Banco Bradesco as we believe it is more exposed to disruption and competition than its peers.
We acquired shares of Yangzijiang Financial as a result of the spin-off from Yangzijiang Shipbuilding. The company's principal businesses are debt investment and investment management.

31-Jan-2024 - Ernest Yeung, Portfolio Manager,

Financials remains our biggest absolute allocation and our largest overweight versus the benchmark. We added to several of our emerging market bank holdings, which we believe have strong capital buffers, low-risk balance sheets, and high-quality franchises, positioning them well to gain market share and accelerate loan growth. We also have a considerable absolute allocation in consumer discretionary, where we own “forgotten” names with self-help stories and idiosyncratic drivers. Recently, we further increased our exposure to consumer discretionary by buying more shares in several of our South Korean and Chinese holdings within the auto supply chain and travel sectors.

30-Jun-2022 - Ernest Yeung, Portfolio Manager,

KE Holdings is one of China's largest property brokerage platforms. We bought more shares in the company as we feel it will gain market share due to its strong network and margin improvement as property sector activity recovers.
We bought shares in Brazilian mall developer Multiplan Empreendimentos, which we feel will see strong rental growth momentum as tenant sales gather pace. It has a healthy cash position, stable occupancy levels and good cost control, in our view.
We bought shares in South Korean food company CJ Cheiljedang as we believe the company's shares will perform well in an inflationary environment.
Tingyi Holding is a leading food company in China. We purchased shares in the company as we believe its margins will improve as the current environment of commodity inflation will likely fade and following the launch of new premium products.
We purchased shares in Weichai Power, a leading diesel and truck engine manufacturer in China. We believe the company stands to benefit from increasing capital expenditure in China as well as from relatively loose monetary conditions.
China Oilfield Services is one of the largest Chinese oil services companies. We bought shares in the company as we believe its future prospects are levered to the increase in oil and gas capital expenditures internationally.� ��
We increased our holding in Alibaba Group as we think that the market valuation of this e-commerce giant has priced in a pessimistic scenario. We see the stock benefiting from cost savings, a cyclical rebound, and improved capital allocation.
Ping An Insurance is one of the largest insurers in China. The environment has been challenging for the company amid lockdowns in major cities; we sold shares in the company as we believe we can find better opportunities elsewhere in the sector.
We sold shares of Brazilian bank Banco Bradesco as we believe it is more exposed to disruption and competition than its peers.
We acquired shares of Yangzijiang Financial as a result of the spin-off from Yangzijiang Shipbuilding. The company's principal businesses are debt investment and investment management.

30-Jun-2022 - Ernest Yeung, Portfolio Manager,

Shares of KE Holdings rose after the company undertook a dual listing of its shares and began trading on the Hong Kong stock exchange. We like this stock on the thesis that the property sector will recover and that its home decoration business will drive future incremental growth.
Tsingtao Brewery, one of the largest breweries in China, reported in-line earnings for the first quarter despite the omicron outbreak which had resulted in strict lockdowns in several large cities. We continue to like this stock because of its low valuations and with investors underappreciating the significant progress in its premium portfolio, product momentum driven by growing interest in domestic brands, and a more commercial organization spurred by the stock incentive plan. In our view, an improved industry structure also provides a favorable backdrop for earnings growth.
Tongcheng Travel Holdings reported better-than-expected first-quarter results and the shares rose. We believe the company, one of the biggest online travel agencies in China, will benefit from easing of the lockdown restrictions as it derives almost all its revenues from domestic travel. We think the company will post fast growth as it is in a strong position to capture the rapid growing travel demand of users in lower-tier cities.
Shares in Petronet LNG, one of the largest LNG (liquified natural gas) importers in India, climbed after it reported strong earnings during the quarter. We continue to like the stock due to its attractive valuations even after pessimistic assumptions regarding tariffs and utilization.
Ambuja Cement shares rose after the Indian conglomerate Adani Group's plans to acquire Switzerland-based Holcim's majority stake in the company triggered an open offer requirement for the rest of the company's shares.
Shares of Hon Hai Precision, one of the world's largest electronics goods manufacturers, rose after it posted a multi-year high net income in the first quarter, gaining market share from its rivals. Despite the deteriorating global macroeconomic environment, company management remained upbeat, focusing on market share gains and surging demand in various computing and cloud devices.
Bizlink Holding performed strongly after its earnings rose sharply. This cable manufacturer has potential upside from its auto and health care business, in our view.
Singapore automobile distributor Jardine Cycle & Carriage added value after it reported strong earnings during the quarter. The improvement was driven primarily by the domestic economic recovery and higher commodity prices. The company benefited from luxury sales tax incentives, and the agribusiness division recorded higher crude palm oil prices.�
Exposure to China's Yangzijiang Shipbuilding, one of the biggest shipbuilders in the world, added value as we believe there is renewed investment interest and reliance on energy internationally. In our view, this stock is a value and late cycle play on the recovery in global shipping demand. We anticipate that a demand upcycle for ship orders will be met with a disciplined supply response after a decade-long bear market for the shipbuilding industry.
Shares of OTP, Hungary's leading bank and the dominant retail franchise in the country, fell due to its business in and exposure to Russia and Ukraine. We are confident the bank is sufficiently capitalized to absorb the losses from its Russian operations and believe there is little balance sheet risk involved. We think future return ratios are likely to rebound supported by higher interest rates and the integration of a Slovenian acquisition.

Benchmark Data Source: MSCI. MSCI index returns are shown with reinvestment of dividends after the deduction of withholding taxes. MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Past performance is not a reliable indicator of future performance.

Source for performance: T. Rowe Price. Fund performance is calculated using the official NAV with dividends reinvested, if any. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested. It will be affected by changes in the exchange rate between the base currency of the fund and the subscription currency, if different. Sales charges (up to a maximum of 5% for the A Class), taxes and other locally applied costs have not been deducted and if applicable, they will reduce the performance figures.

Daily performance data is based on the latest available NAV.

The Funds are sub-funds of the T. Rowe Price Funds SICAV, a Luxembourg investment company with variable capital which is registered with Commission de Surveillance du Secteur Financier and which qualifies as an undertaking for collective investment in transferable securities (“UCITS”). Full details of the objectives, investment policies and risks are located in the prospectus which is available with the key investor information documents and/or key information document (KID) in English and in an official language of the jurisdictions in which the Funds are registered for public sale, together with the articles of incorporation and the annual and semi-annual reports (together “Fund Documents”). Any decision to invest should be made on the basis of the Fund Documents which are available free of charge from the local representative, local information/paying agent or from authorised distributors. They can also be found along with a summary of investor rights in English at www.troweprice.com. The Management Company reserves the right to terminate marketing arrangements.

Please note that the Fund typically has a risk of high volatility.

Hedged share classes (denoted by 'h') utilise investment techniques to mitigate currency risk between the underlying investment currency(ies) of the fund and the currency of the hedged share class. The costs of doing so will be borne by the share class and there is no guarantee that such hedging will be effective.

The specific securities identified and described in this website do not represent all of the securities purchased, sold, or recommended for the sub-fund and no assumptions should be made that the securities identified and discussed were or will be profitable.

Attribution Data: Analysis represents the total performance of the portfolio as calculated by the FactSet attribution model and is inclusive of other assets that that will not receive a classification assignment in the detailed structure shown. Returns will not match official T. Rowe Price performance because FactSet uses different exchange rate sources and does not capture intra-day trading. Performance for each security is obtained in the local currency and, if necessary, is converted to U.S. dollars using an exchange rate determined by an independent third party. Figures are shown with gross dividends reinvested.

Sources: Copyright © 2024 FactSet Research Systems Inc. All rights reserved. MSCI/S&P GICS Sectors; Analysis by T. Rowe Price Associates, Inc. T. Rowe Price uses the MSCI/S&P Global Industry Classification Standard (GICS) for sector and industry reporting. Each year, MSCI and S&P make changes to the GICS structure. The last change occurred on September 28, 2018. T. Rowe Price will adhere to all future updates to GICS for prospective reporting.

The Global Industry Classification Standard ("GICS") was developed by and is the exclusive property and a service mark of Morgan Stanley Capital International Inc, ("MSCI") and Standard & Poor's, a division of The McGraw-Hill Companies, Inc. ("S&P") and is licensed for use by [Licensee]. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classifications makes any express or impIied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability and fitness for a particular purpose with respect to any or such standard or classification, Without limiting any or the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling the GICS or any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

©2024 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete, or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.

A full list of the currently issued Share Classes including Distributing, Hedged, and Accumulating Categories may be obtained, free of charge and upon request, from the registered office of the Company.

Real Estate

Consumer Staples

China

Financials

Risks

Typical Investor