Russia's problems help to rebuild trust in emerging Europe, according to Barings

According to Kaylie Pferten, the Barings Emerging Europe trust has expanded its mandate to include the Middle East and Africa and is producing a robust recovery

Russia's invasion of Ukraine was a devastating blow to Baring's Emerging Europe trust. Its assets, which were invested in Russia to the tune of about 28%, were immediately worthless. By the end of 2023, the share price had almost fallen to half of its peak in early 2022.

Nevertheless, Barings and the board made the decision to continue. They rebranded the trust Barings Emerging EMEA Opportunities (LSE: BEMO) and expanded the investment remit to encompass the Middle East and Africa in addition to Eastern Europe and Central Asia. Even so, the share price is still trading at a 17 percent discount to net asset value (NAV), having nearly returned to its peak four years ago. A trust with net assets of £110 million has been left by the board's consistent share buybacks.

How the portfolio was diversified by Barings Emerging Europe trust.

The markets in BEMO's catchment area are an odd mix. Over 80 percent of the MSCI Emerging Markets index is made up of Asia, with Latin America making up 8 percent. Emerging Europe, the Middle East, and Africa make up the remaining 11 percent. The northern half of Eastern Europe and many of the Gulf states can scarcely be considered emerging anymore. Geographically, politically, economically, and socially, the diverse region is completely ununified. Yet, this gives it excellent diversification across industries, businesses, and opportunities.

South Africa, which accounted for 31% of the portfolio at year's end, was a major contributor to last year's 26% investment return. This included more than 6% of Naspers, an internet, technology, and multimedia investor that indirectly owns 31% of the Chinese tech giant Tencent, and more than 5% of each of the two gold miners, AngloGold Ashanti and Gold Fields. Due to an improving political and economic environment, South African banks have also performed well.

Another bright spot has been Eastern Europe, particularly Poland (13 percent of the portfolio), which is expected to surpass much of Western Europe in terms of prosperity due to its rapid growth. Greek banks have profited from the nation's recovery, and investments in Hungary and the Czech Republic have also done well. Steering clear of Saudi Aramco has improved relative performance in light of the declining oil prices. Performance was hindered by the 22 percent allocation to Saudi Arabia in general, but not by the 10 percent exposure to the United Arab Emirates.

If the economic mismanagement of its government improved, Turkey, which only makes up 5% of the portfolio, would present an opportunity. Apart from South Africa, the fund does not currently have any investments in Central Asia or Africa. One possible future benefit could be the cessation of the conflict in Ukraine. Even though BEMO's investments in Russia are currently worthless, they might eventually be worth more. A few of them have been sold by the managers in recent years.

Deserved to live.

A strong recovery in 2024 served as the foundation for last year's performance. Performance would be improved if the discount could drop even more. The dividends were increased by 5% in 2025, and the shares yield a respectable 2 percent. Although the trust does not currently have any debt, it is open to acquiring equipment to improve performance.

BEMO's size is comparable to that of BlackRock Latin America (LSE: BRLA), which after five wretched years returned 44 percent in 2025. Due to their perceived "sub-scale" status by the large wealth managers, both trusts are regrettably in danger of going extinct. 33% of votes were cast against the resolution, even though BEMO passed a continuation vote in October.

In the event that either trust is wound up, their region would only be mentioned as an afterthought by emerging markets generalists who have a strong emphasis on Asia. As demonstrated by the past year, this would be a grave error; there is a good chance that these two underappreciated areas will surpass Asia in the coming years. Both trusts ought to be at least twice as large as they are now.