Emerging markets-focused investment firm APQ Global Ltd (LON:APQ) is on track to meet its target annual dividend yield of 6% and believes the global economic growth outlook is supportive for equities in the medium-term.
The company said in a trading update for the third quarter to September 30 that its dividend remains well covered by economic income in the portfolio.
The bulk of the group’s overall exposure is in credit and government bonds, which represented 51.6% of the total book value in the third quarter, and in cash, accounting for 57.6% of the total.
Emerging markets equities accounted for 29.9% of book value and local currency bonds was 10.9%.
From a sector perspective, the bulk of the company’s emerging markets exposure is in financials, followed by energy and information technology.
APQ’s book value was 105.96 US cents per share, or 81.26p, at the end of September.
It returned 0.24% less to its shareholders in US dollar terms but paid a dividend of US$1.97 each in what it described as a “turbulent” quarter as a trade dispute between the US and China and higher interest rates in the US weighed on investor sentiment.
APQ sees opportunity in Turkish banking sector
APQ continued to rebalance the portfolio more defensively in the period.
The company adjusted its emerging markets equity portfolio in the quarter, keeping a small EM equity index position and its two strategic positions in City of London Investment Group and Anglo Pacific Group. APQ also added exposure to four Turkish banks after a sharp sell-off in August.
“Turkish markets have had a very rough ride in 2018 in the currency, equity and bond markets but we feel that the economic situation is stabilising, the central bank has been very proactive in raising interest rates, banks have successfully tapped into the syndicated loan market since the crisis, the government has issued a $2bn bond so we fell the worst is behind us,” said chief executive Bart Turtelboom.
“We’ve already seen a significant rally in the currency and when you plug in those forecasts in any valuation metrics you can use for Turkish banks they do look quite appealing indeed.”
As part of its portfolio adjustment, the company reduced its currency exposure as central banks in the US and Europe tighten monetary policy.
In the near term, the group believes an escalation in trade wars, political and economic uncertainty in Italy and increased tensions in the Middle East and the Gulf will likely dampen market sentiment. But it thinks medium-term global economic growth outlook will be supportive for emerging markets equities.
Portfolio 'well diversified'
The group said its emerging markets credit book and portfolio are both well diversified, with a large positions in Turkey, Brazil and Mexico and exposure concentrated in government entities, banks and corporations in the energy sector.
“The company is currently evaluating various business opportunities with a focus on EM which are undergoing a process of due diligence and takes a cautious approach to such investments,” it said, adding that its would update shareholders on its progress with potential investment opportunities in due course.