BMC International (Ex USA) August 2026

The strongest contributors to performance during the month were Shiga Bank, BayCurrent and Kyoto Financial Group.

Shiga Bank was the largest contributor after reporting a strong first quarter. Net profit increased 47% year on year, supported by higher loan and securities income, while core banking profit excluding investment-fund gains rose more than 80%. The result reinforced the benefit that higher Japanese interest rates are having on the bank's earnings.

BayCurrent continued to perform strongly following a first-quarter update in which revenue grew 30% and operating profit rose 19%. Demand for digital transformation, generative AI and broader corporate-change projects remains robust, supporting the company's long-term growth outlook.

Kyoto Financial Group also benefited from improving Japanese bank profitability. First-quarter net interest income increased 24% and net profit rose 56%, while the group continues to improve capital efficiency through share buybacks and the reduction of strategic equity holdings.

The weakest contributors were Azbil, Pepco Group and Open House Group. Azbil declined after first-quarter business profit fell 30%, as growth investment, higher personnel costs and a tough comparison offset a 29% increase in orders. Pepco gave back part of July's strong gain following completion of its EUR400 million tender buyback, which acquired 36.5 million shares for cancellation. Open House weakened despite reporting record nine-month sales and profit, raising its dividend and moving full-year guidance toward the upper end of its previous range.

Key market events and trends

The MSCI World (EUR) index rose by 1.7% in August and is now up 15.6% so far this year. As you might remember, we started the year anticipating 14% profit growth for 2026—which we since revised to 22%, with a further 14% growth expected for 2027. This solid profit performance has pushed the equity market upward, despite headwinds from higher energy costs and rising long-term interest rates. The US recently "celebrated" USD 40 trillion in national debt, which has contributed to rising credit demand, pushing bond yields up further.

Q2 2026 reports surpassed expectations by a fair margin. However, the results were bolstered somewhat by unrealized value increases in SpaceX and Anthropic, which companies like Alphabet and Amazon have accounted for as revenue. Adjusted for these non-recurring items, underlying profits grew by a solid 24% in both the US and Europe.

We also note that Nvidia's revenue growth of 100% and management's guidance for 70% sales growth next year—far exceeding analyst expectations—which offers additional support for the AI expansion theme.

We expect that the markets will continue to rise during the second half of the year, albeit with the usual volatility in September. As we move into Q4 2026, attention will focus even more on the mid-terms in the US and whether the Trump administration can maintain its control of the House and the Senate.

Portfolio changes during the month

During August we initiated two new positions: Zegona Communications and Nittetsu Mining.

Zegona is a specialist 'buy, fix, sell' vehicle focused on European telecommunications. It acquired Vodafone Spain for EUR5 billion and has rapidly improved the business: revenue returned to growth in the second half of FY26, EBITDA after leases increased 7%, and operating cash flow rose 22% to EUR763 million. The monetisation of two fibre businesses generated EUR1.8 billion of proceeds for debt reduction and shareholder returns, with further upside available from continued cost and cash-flow improvements.

Nittetsu Mining combines a high-quality Japanese limestone business with copper mining operations in Chile. Its new Arqueros copper mine is approaching production and should materially increase group earnings. The company also owns substantial non-core property and strategic shareholdings, creating an additional value-realisation opportunity through asset sales and share buybacks.

Funds positioning

We remain very optimistic about the opportunities available across the portfolio. Our largest investment themes continue to be Japanese corporate reform, Asian technology, financial market infrastructure and European businesses undergoing meaningful capital allocation improvements. We continue to see an attractive pipeline of new investment opportunities and believe the portfolio remains well positioned for long-term compounding.

*MSCI ACWI ex USA NTR USD Index in EUR