JPMorgan Emerging Market Investment Trust says countries with commodity exposure continue to benefit in the current market environment, while oil-dependent countries are lagging behind energy-rich neighbours.

The MSCI Emerging Markets Index rose 1.8 per cent in GBP terms in May, the second consecutive monthly gain, and over the past 12 months the asset class is down 2.2 per cent, modestly outperforming developed markets.

However, the headline performance within emerging markets disguises the distinct divergence in the fortunes of the various emerging market regions as investors shied away from those that are heavily dependent on commodities, such as Turkey and Egypt, while continuing to invest in the markets that are seen as the greatest beneficiaries of the continuing high prices of commodities, including Brazil, Russia and Argentina.

The JPM team identified that investors are starting to retreat from countries where inflation and high oil prices are most detrimental as they expect that energy prices will continue to hit new highs.

From an asset allocation perspective, overweights in Mexico and Brazil and an underweight in Malaysia benefited the investment trust, and investments in China and South Africa also had a positive impact on performance.

Claudia Barrulas, client portfolio manager for JPMorgan Emerging Markets Investment Trust, says, ‘Despite global concern over economic slowdown, emerging markets as a whole are still outperforming developed countries. The main drivers are domestic demand and consumption growth coming from within emerging markets. Infrastructure spending and commodities have been playing an important role and are part of a theme that we expect to continue to deliver over the mid to long term across all regions.’

Looking across the regions, the MSCI Latin America index turned in another strong month, rising 9.3 per cent (GBP), driven by particularly strong performance from Argentina (+15.8 per cent) and Brazil (+11.6 per cent) during May, as follow-on buying continued after the country’s sovereign debt was upgraded by a second ratings agency, Fitch, making it eligible for more international investors.

The worst performer in the month was Chile (-1.6 per cent), as the country struggles with continued shortages of energy and the impact of a historically strong currency.

The largest regional laggard during May was emerging Asia, which fell 4.1 per cent. As the key consumer and importer of a number of commodities, Asia is suffering from rising inflationary concerns.