Emerging Markets Equity Fund

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Overview

Manager's Outlook

We believe that economic growth across many developing markets could continue to be higher than in the developed world soon, with some signs that this gap, which narrowed for five years through 2015, is turning wider. We feel that those countries that push forward with reforms could do well, while countries that do not may struggle. Our view is that we are likely to see a much more uneven world going forward, with less correlation and greater divergence in performance among countries and in stocks within those countries. We will remain focused on quality companies, as we continue to believe that those leading firms will weather the tough environment and may, in fact, improve their competitive positioning.

Near-term risks include an escalation of trade war rhetoric or a worse-than-expected slowdown in China or a breakdown in its financial system or an unexpected bout of risk aversion due to geopolitical events. A stronger-than-expected U.S. dollar could also pose a risk for these markets. However, we believe that investor concerns may be overdone. The extent of the Chinese growth slowdown remains a key question, but we think policymakers have the tools to manage the transition and slowdown that is occurring in China.

In our opinion, the impact that higher U.S. interest rates will have on emerging markets may turn out to be less significant than investors fear. Higher interest rates are reviving the concerns about lower capital flows (such as foreign direct investment) and weaker currencies within these emerging market countries. But broadly speaking, we think that most emerging market countries are in better shape to weather this volatility, with improved current account positions; higher foreign exchange reserves; higher real interest rates; and currencies that, in most cases, have fallen over the past several years.

Overall, we believe the environment may remain complex, but, in our view, this could provide a good opportunity for active investors to take advantage of valuation anomalies. The emerging consumer remains a powerful force, in our view, and could, we believe, continue to drive strong growth in a variety of industries and companies, including retail, banking, technology, and the internet. With investors skeptical, valuations attractive, and fundamentals bottoming, we believe the environment appears positive for emerging markets equities and ripe for stock picking.

Strategy

Fund Summary

We have a bottom-up, long-term approach, driven by fundamental research. Our company research focuses on franchise strength, management team quality, free cash flow, and financing structure. Corporate governance is strongly embedded within our investment process, as is the consideration of critical macroeconomic and political factors. 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.

OUR VIEWS ON EMERGING MARKETS

Performance - Net of Fees

Past performance is not a reliable indicator of future performance.

30-Apr-2024 - Eric Moffett, Portfolio Manager,

Emerging markets rose in US dollar terms in April and outperformed their developed peers. This was largely due to strong showing in Chinese equities amid hopes that the economy could be gaining traction. Within the portfolio, security selection in consumer discretionary hurt relative performance the most at the sector level, although our overweight allocation offset some losses. Shares of a Chinese restaurant operator retreated on soft demand as consumers remained sensitive to dining out. However, despite recent underperformance, the company reported resilient first-quarter earnings amid sales growth in its new stores. Stock picking in financials also hindered. In contrast, our stock choices and below-benchmark position in health care helped. Here, our investment in a Chinese medical devices company rose after it announced solid first-quarter results. Profits were driven by increased demand for its medical imaging products. Our choice of securities in communication services added further value, although this was largely offset by our underweight position in the space. On a country basis, stock selection in China, Brazil and South Korea hindered, as did our holdings in India. Conversely, our off-benchmark exposure to the Netherlands helped. Our security picks in Thailand also contributed.

31-Dec-2018 - Gonzalo Pángaro, Portfolio Manager,

We believe (as we have for some time) that, by and large, emerging market countries are in relatively good economic shape. When compared with developed markets, and particularly the U.S., they are at an earlier stage in terms of economic recovery and also in terms of improvements in earnings and margins. However, emerging markets have seen volatile conditions in the recent sell-off in global equities; while we remain mindful of the risks to the asset class, such as continued trade tensions between the U.S. and China and the future path of U.S. monetary policy, our view is that valuations are at attractive levels, while currencies have also corrected. Indeed, we have been taking advantage of this volatility to add to our positions in companies where we have a high level of conviction over their long-term prospects.

Overall, the portfolio continues to have a growth tilt. We are overweight to the IT sector, consumer-related stocks, and financials, where our highly detailed investment research is helping us to identify companies that we believe offer good growth potential. We are underweight to areas of the market where we struggle to find companies with sufficient scope for growth, such as energy, materials, and telecom names.

We Retain Our Overweight To IT; Sector Remains One Of The Largest In Emerging Markets

The size of the IT sector in emerging markets has fallen since the recent MSCI sector reclassification, with several companies (including some names that we continue to own in the portfolio, such as Chinese internet companies Alibaba and Tencent) being moved to either the consumer discretionary space or the new communication services sector. However, IT remains one of the largest sectors within emerging markets, and we retain our overweight.

During the quarter, we initiated a position in Brazilian company Stone, which engages in the provision of financial technology solutions. The company processes payments, which we believe gives it a great deal of scope to grow and expand into other segments and businesses. We met the company following an investment research trip to Brazil in November, and we believe it offers compelling investment potential.

Private Sector Banks In India Are Continuing To Gain Market Share

The portfolio is overweight to financials, the largest sector in emerging markets, where we have identified good investment potential among selected banking and insurance stocks across a range of countries. For example, in India, we think there are some significant tailwinds for private sector banks. Broadly speaking, in our view, the state-owned banks in India are continuing to suffer from some poor loans and poor asset quality, and this is curbing the amount of capital they have to grow their loan books. The private banks are stepping into that gap; by and large they are taking market share in terms of credit growth, and return on equity is improving. These companies are also investing in their online banking and product offerings, and we think that this is helping them to build a stronger competitive position. While we are mindful of recent issues in the wholesale funding market in India, we believe that the risks have reduced. Overall, our view is that the banks that we own here have high-quality balance sheets and diversified sources of funding, with less dependence on wholesale funding. Another issue we are cognizant of is the recent change in leadership of the Reserve Bank of India following the unexpected resignation of the previous central bank head, who had disagreements with Prime Minister Narendra Modi over monetary policy. While we do not view this as a significant near-term risk, we will be monitoring the situation closely.

Over the quarter, we initiated or added to some positions in the financials sector and trimmed our holdings in a number of other names.

We initiated a position in Brazilian stock exchange company B3, following an investment research trip to Brazil in November and a meeting with the company's CFO. We would expect the stock to benefit from an environment of improving growth and market performance. With interest rates coming down and risk appetite increasing, we believe there are a number of tailwinds for the equity market environment and, therefore, the company's earnings. B3 also trades at a discount to other global exchanges.
We added to our position in Al Rajhi, Saudi Arabia's second-largest bank. The Saudi banking sector is favorably positioned, in our view; it is an oligopolistic market with high barriers to entry. We expect the banks to benefit from interest rate hikes from the U.S. Federal Reserve (given the Saudi currency's peg to the U.S. dollar). In our view, economic expansion and loan growth are also set to recover. We believe that Al Rajhi is the highest-quality Saudi bank, and we expect it to grow margins and return on equity.
We added to our position in South African insurer Sanlam, which offers both life and non-life cover as well as other financial services. We prefer the name to fellow South African financial services group FirstRand (which we also hold; see below for further details) and switched some of our holding in this company into Sanlam. We also believe that Sanlam is good operationally, and the company continues to take market share.
We trimmed our position in South African group FirstRand, which, in our view, is the highest-quality bank in emerging markets, with superior return on equity. We believe the medium- to long-term prospects for the company remain on track, although on a near-term view the valuation is looking a little stretched after strong outperformance. We have, therefore, taken some profits and switched into insurer Sanlam (see above for further details).
We trimmed our position in Brazilian name Itau Unibanco on strong outperformance. The bank remains a core position for the portfolio, given the supportive domestic environment, as loan growth picks up and consumer confidence rebounds. The banking industry structure in Brazil is also attractive, in our view, with a high level of consolidation and a well-capitalized system.
We reduced our position in Ping An, China's largest insurer. The company's advanced technology platform is a competitive advantage, in our view, and also provides other financial technology options and opportunities. We continue to like the name for what we see as its favorable long-term fundamentals, but given the increased equity market volatility at present, associated with "trade war" rhetoric escalation, we have trimmed the position as the company has high equity market exposure.

Growing Prosperity Across Developing World Is Providing A Strong Tailwind For Consumer Stocks, In Our View

Increased prosperity across the emerging world remains a powerful medium- to long-term trend, in our view. We have identified several companies that we believe are well placed to take advantage of the considerable business opportunities that this growing wealth presents; as a result, the portfolio has a large overweight to consumer-related stocks.

Over the period, we trimmed our holding in Brazilian name Lojas Renner, one of our largest relative positions, following a strong period of outperformance in the wake of Jair Bolsonaro's election victory. We believe the apparel retailer has strong operational efficiency, and, in our view, this may enable it to continue to take market share. The improving consumer environment may provide a further boost. Given Lojas Renner's significant recent outperformance, taking some profits seemed prudent, in our view.

Portfolio Remains Underweight To Commodity-Driven Sectors

We retain our long-standing underweight to the commodity-driven energy and materials sectors. Broadly speaking, we struggle to identify stocks in these areas of the market with sufficient growth potential, while we continue to have a negative view on the longer-term outlook for the price of oil. Having said that, we have stock-specific positions in markets including Russia and the United Arab Emirates, partially as a counterbalance to our large underweight to energy; both markets are correlated to oil-price trends.

We have also identified some stock-specific opportunities in the materials space and made some changes to our holdings here over the quarter; we initiated a position in a pulp producer and trimmed our holding in a mining stock.

We initiated a position in Brazilian company Suzano, which became the world's largest pulp producer following a merger. Suzano is a relatively low-cost producer, and with strong pulp demand and robust free cash flow generation, we believe the near-term outlook for the company is supportive.
We reduced our holding in Fresnillo, a Mexican gold mining company listed in London. We trimmed the name because we believe production has peaked and also on concerns about a deteriorating political environment with the election victory last year of left wing populist candidate Andres Manuel Lopez Obrador. In our view, the risk outlook and risk premium for the stock has increased on the back of this development.

We Are Underweight To Communication Services, Largely A Result Of Low Exposure To Telecom Names

One of the key changes in the recent MSCI sector reclassification was that the telecommunication services sector was expanded and renamed communication services. As part of the changes, some securities previously assigned to information technology or consumer discretionary were reclassified as communication services. We are underweight to the new sector, largely a result of our low exposure to telecommunications stocks; this area of the market is relatively mature and "ex growth" even within the emerging world.

However, we have a sizable position in communication services in absolute terms, largely a result of names that have moved across from other sectors during the reclassification and which we continue to hold in the portfolio, the foremost of which is Chinese internet stock Tencent, in which we continue to have a high level of conviction.

31-Jan-2024 - Eric Moffett, Portfolio Manager,

Consumer discretionary and consumer staples are areas where we have identified several high-quality investment opportunities. We have a large allocation to the latter where we believe our holdings are well placed to benefit from a growing middle class in the emerging world. These companies have the potential to achieve relatively stable levels of earnings growth over the next few years, in our view. In contrast, we have relative underweight positions in the materials and utilities sectors, where we have typically not found many companies with the durable, longer-term, earnings characteristics that we seek.

30-Jun-2022 - Eric C. Moffett, Portfolio Manager,

We initiated a position in Southern Copper, one of the top five copper producers in the world. Half of its production base is in Mexico and the other half in Peru. The company has one of the largest copper reserve bases globally and an attractive portfolio of future projects. We believe this is a solid dividend play on copper, which is a sustainable material with solid long-term fundamentals.
We established a position in Grupo Mexico, a Mexican conglomerate with interests in copper mining, railroad transportation, and infrastructure. This is a sum-of-the-parts story that offers a resilient dividend play on copper and an opportunity for unique organic growth optionality longer term.
We added to our position in Saudi National Bank (SNB), the largest bank in Saudi Arabia by total assets. This is a high-conviction holding that delivered strong first-quarter results that beat consensus and raised its fiscal year profitability guidance target range. We believe that SNB's fundamental setup for the next few years is attractive. Our thesis on the stock continues to play out as SNB delivers on accelerating loan growth, improving net interest margins, and reducing the cost of risk.
We eliminated our position in Al Rajhi Bank, the largest Islamic bank globally. We downgraded the stock as valuations are at all-time highs. We believe there is increased potential for net interest margin compression?even with rate hikes?as the earnings downgrade cycle continues.
We sold out of Banco Santander Chile, Chile's largest bank, following strong year-to-date performance. In our view, the political landscape in Chile is becoming more risky, and we chose to eliminate our exposure to the country.
We added to our position in Localiza Rent a Car, the largest car rental company in Brazil and Latin America. We think Localiza is an exceptionally well-run company with durable competitive advantages and a focused strategy to consolidate the large and fast-growing Brazilian car rental market. Localiza's recent merger with its closest car rental rival, Unidas, is almost completed, and we believe that the combined firm will be well positioned with a long runway for growth and an attractive earnings profile.� �
We initiated a position in Centre Testing International, a provider of independent testing and inspection services for industrial and consumer products. The company has strong brand credibility and is one of China's leading service providers in this area. We think that the company's organic growth trends and margins in its food, pharmaceutical, and auto testing services are attractive and that expansion opportunities in additional industry verticals exist. Furthermore, we appreciate that the stock has high liquidity in the domestic A-shares market.
We trimmed our holding in Mexican airport Grupo Aeroportuario del Sureste, known as ASUR. This is a high-conviction name where the traffic has recovered, along with the stock. The cash flows are now solid, and they are paying dividends. Due to the lack of further concessions, however, we wanted to manage position size to balance some structural growth concerns in the medium term.
We trimmed Alibaba Group Holding, a Chinese multinational technology company specializing in e-commerce, retail, the internet, and technology, to manage position size during the quarter. Although Alibaba's core China e-commerce marketplace business is under pressure in the near term from increased competition, regulation, and cyclical factors, we remain favorable on the stock, as we expect the business to recover in the coming year.
We eliminated our holding in MercadoLibre, the largest online trading platform in Latin America. There are signs of online growth slowing in the near term based on higher spending and taxes, which will likely increase volatility.

30-Jun-2022 - Eric C. Moffett, Portfolio Manager,

Yum China Holdings is the country's largest restaurant company and operator of the KFC, Pizza Hut, and Taco Bell chains. Shares advanced after the firm released first-quarter earnings that were in line with the modified expectations that were reset in the firm's March profit warning. Notably, the results showed that the underlying fundamentals of the business remain solid despite the significant short-term disruptions from China's zero-COVID policy with store openings on track and stable store payback rates. We believe that Yum China's healthy balance sheet and increasing commitment to return value to shareholders through a high level of cash payouts in the form of buybacks and dividends provide a valuation floor.�Further, we think that Yum China's strong competitive position, coupled with its management team's solid executional track record, position the firm well to navigate through the current pandemic challenges and capture share as demand recovers.
Zhejiang Sanhua Intelligent Controls also aided relative outperformance. Sanhua is an industrial parts supplier that sells complex thermal management components used in electric vehicle batteries and home appliances. Shares rose after Sanhua released solid first-quarter business results in April that were ahead of consensus for both revenues and net income. Sales in the auto component segment benefited from the strong trends for electric vehicles, while signs of a turnaround in China's property market boosted demand for Sanhua's thermal controls used in high-efficiency home air conditioners.
Along with solid contribution from Yum China Holdings, our holding in Chinese shopping platform Meituan added value. Shares advanced after the firm released first-quarter earnings that beat expectations and showed strong year-over-year revenue growth as their food delivery revenue has remained resilient during the lockdown. While we expect some near-term earnings volatility, we believe Meituan offers two strong, attractive growth engines. Its in-store business captures the monetization potential to bring online users to offline services, while its leading position in food delivery offers advantages in a benign competition environment.
The stock price of Brazil-based BM&FBOVESPA (B3) saw a decent correction following their peak in early April. B3, Latin America's largest cash equities, derivatives exchange, and depositary company, posted underwhelming earnings as capital market activity in Brazil remains depressed.�Despite the challenging macro outlook in Brazil, we remain attracted to the quality of B3's core business, along with its high barriers to entry, impressive margins, and high cash generation/dividend distribution profile. We believe that the firm is also well positioned to benefit from secular growth in the adoption of structured products as Brazilian capital markets develop over time.�
B3 was the largest detractor in the country during the quarter.
Additionally, our holding in Rede D Or Sao Luiz, Brazil's largest hospital operator, detracted, as shares declined alongside the broader Brazilian market pullback and a slight first-quarter earnings miss. Although the near-term environment may be choppy, we continue to believe that Rede D Or Sao Luiz can deliver attractive, durable earnings growth, as it is well positioned with scale, market share, and strong management to consolidate a fragmented and inefficient industry.

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.

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.

©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.

Citywire Data Source: Citywire – where the fund manager is rated by Citywire, the rating is based on the manager’s 3-year risk adjusted performance. For further information on ratings methodology, please visit www.aboutcitywire.com.

We Retain Our Overweight To IT; Sector Remains One Of The Largest In Emerging Markets

Private Sector Banks In India Are Continuing To Gain Market Share

Growing Prosperity Across Developing World Is Providing A Strong Tailwind For Consumer Stocks, In Our View

Portfolio Remains Underweight To Commodity-Driven Sectors

We Are Underweight To Communication Services, Largely A Result Of Low Exposure To Telecom Names

Risks

Typical Investor