MACRO AND MARKET REVIEW
Emerging Market equities continued their strength into June, helped by moderating geopolitical uncertainty as Israel/Iran tension seemed to be short-lived and amid ongoing trade talks. The MSCI EM Index gained 6.1% in USD terms in June and outperformed the MSCI World by 1.8 ppt. In Asia, South Korea was the strongest market, recording a gain of ~17% in the month, followed by Taiwan’s 9%. Non-Asia EM markets were also strong. Brazil recorded an 8% gain while Turkey regained some lost ground YTD with an 11.2% gain in June. China and India were relatively muted, with both indices gaining more than 3%.
In South Korea, the election of Democratic Party candidate Lee Jae-myung – widely expected by markets – brings an end to six months of political uncertainty. With the Democratic Party now holding both the presidency and a majority in the National Assembly, the stage is set for an easier path towards the long-awaited capital market reforms. These include efforts to improve corporate governance with the commercial code revision, potential changes to how dividend income is taxed, and to ultimately address the persistent ‘Korea discount’. President Lee has surprised some investors with a more growth-oriented stance, emphasising supportive fiscal policy and large-scale investments in strategic sectors such as AI, biotech, healthcare, and defense. However, sentiment remains mixed. Long-time South Korean market observers remain skeptical of meaningful changes happening in corporate Korea and view the market as overly optimistic. Others are cautiously optimistic about the impending reform but prefer to trade on cyclical dynamics. Meanwhile, a growing group of global investors – less familiar with South Korea – see an asymmetric opportunity worth exploring. This remains an undervalued market in the EM universe, even after the strong performance YTD.
China was a laggard. Sentiment deteriorated somewhat on the absence of a concrete deal with the US as we approach the critical timeline for tariff implementation. Large-cap Consumer Discretionary and Telecommunication Services also did not perform amid lingering concerns around intensifying competition in the local consumption space. However, recent developments still point to a positive policy direction, with the outcome of the China-US trade talks in London leading to a relaxation in trade restrictions on both sides. In the domestic market, the CSRC is signalling a more pro-growth shift by enhancing support for tech firm fundraising, easing listing rules for innovative companies, promoting cross-border fund flows, and encouraging investment in consumer sectors. China’s top leadership is also taking a more focused approach to long-standing structural reforms, emphasising fiscal system upgrades, realigned macro targets and improved performance evaluations. While concrete timelines are still pending, the sharper tone and clearer intent suggest stronger policy coordination ahead to tackle structural and near-term cyclical challenges from tariff uncertainties.
India’s recent high-frequency data reflects slow urban consumption recovery, while rural demand and private capex growth are seeing stronger traction. Central government capital expenditure surged 54% YoY in April-May, signalling a strong rebound from last year’s election-related dip, with notable increases in defense and shipping. While some infrastructure segments lagged, the front-loaded nature of spending – with 20% of the FY26 budget already utilised – suggests continued momentum in spending in strategic areas. India’s macro backdrop remains supportive, aided by a falling oil price, rising service exports, rate cuts and liquidity injections by the RBI.
Asian Tech stocks have rebounded strongly from the April tariff-driven sell-off, led by AI-related names. Despite FX headwinds, earnings revisions are up 18% year-to-date, with momentum expected to continue as AI supply-chain issues ease and datacenter capex ramps into 2026. Investors await more clarity on upcoming semiconductor tariffs and visibility into AI demand sustainability at the upcoming TSMC analyst meeting and US cloud service providers’ earnings calls in July. Non-AI tech remains more mixed, with consumer technology demand headwinds likely to emerge in a cautious spending environment. While overall sentiment post-Computex has improved as the high capex spending in AI is likely to continue in the near term, global positioning in technology reflects a relatively conservative mood which could set the stage for another leg of the rally.
PORTFOLIO ACTIVITY
On the back of an improving macro backdrop in South Korea, the Fund initiated two new positions in the market – Hanwha Aerospace and Samsung C&T. The first, Hanwha Aerospace, is a major defense systems manufacturer that is on track to evolve into a global player, with its systems winning huge contracts and being recognised for its technology and production efficiency. Its valuation is still attractive relative to global defense peers. For Samsung C&T, we expect the wide discount to its NAV, which is backed by its valuable stakes in Samsung Biologics, Samsung Electronics and Samsung Life, to narrow significantly with the prospects of stronger corporate governance reforms in South Korea.
PERFORMANCE
The LO Funds–Emerging High Conviction Fund slightly underperformed its benchmark in June. While our underweight in South Korea and currency effects were headwinds, strong stock selection in the IT sector helped offset the drag.
Enthusiasm around AI remains a key driver, with two of our top performers – Grand Process and SK Hynix – benefiting from the trend. Grand Process gained as concerns over upstream NVDA chip inventory eased, thanks to a smoother downstream AI server ramp. Hynix also rallied on improved AI sentiment and strong capital inflows into Korea. The new consumption theme in Asia also continues to perform well, with our holdings in Pop Mart and Chow Tai Fook sustaining their strong YTD performance.
Our high-conviction holding in Trip.com was a main detractor in June, largely due to concerns over JD.com’s potential entry into the Travel OTA industry. However, we remain confident in Trip’s industry leadership, with aspects like its well-established relationships with platform partners, high satisfaction among end users and extension of services beyond just hotel room bookings into transportation, destination attractions, packaged tour services etc not something that can be easily replicated by JD.com. Alongside Trip.com, weakness was also seen in consumer platform technology companies in the on-demand, quick commerce sector as industry leaders Alibaba, Meituan and JD.com ramped up subsidies to compete for more on-demand traffic. Despite this short-term competitive pressure, Alibaba remains one of the best-positioned consumer technology platforms in China, with strong cash flow, an attractive valuation, and a leading role in AI infrastructure, which is an edge that has yet to be fairly valued by the market.
OUTLOOK
Investor sentiment towards Emerging Markets is turning more constructive as confidence grows in their resilience and long-term potential. While near-term tariff uncertainty remains, many are now looking beyond the near-term headwinds, recognising the strength of Asia’s supply-chain adaptability, rising technology leadership in China and the operational excellence of Asian industry leaders. These companies have not only weathered disruptions but are expanding their global relevance – particularly in AI, where Asia plays a critical enabling role in advanced semiconductor manufacturing and infrastructure. Beyond hardware and industrials, Asia’s soft power is also rising. Brands like Pop Mart are exporting cultural IP globally, while leaders in automation, EVs, and aerospace components are gaining traction as global demand aligns with Asia’s strengths. On flows, the long-term trend of USD strength against EM currencies is reversing, with more investors wanting to diversify away from the US and USD. This is a tailwind for EM equities.
EM equities continue to offer compelling growth opportunities at a reasonable valuation. Our strategy remains focused on high-quality companies with durable competitive advantages, strong cash generation and exposure to structural growth themes. The appeal of EMs is not just investing in their resilience but also in their potential to power the next phase of global growth.
Thank you for your continued support.
LOIM Asia Equities team
