EM Fund Stock Picks & Country Commentaries (April 25, 2023)
More emerging market fund stock picks from London listed closed-end funds are in focus this week covering a variety of regions and countries - including Vietnam's messy real estate sector and Chile.
A variety of emerging market fund stock picks (like last week, mainly from London listed closed-end funds - there will be another post later this week covering EM-international funds from a US mutual fund group) to highlight this week (among other stocks also getting mentions later in this post):
An Asian power tools manufacturer who also pioneered cordless power tools powered by lithium-ion rechargeable batteries.
Another Asian compact equipment manufacturer who has seen a surge in sales to North America and record earnings for last year.
A Chinese fashion stock pick who is more low-key and succeeding in the crowded middle-market. However, they have also managed to occasionally have the sorts of design controversies (angering Chinese consumers) that you would expect from Western fashion companies - not Chinese ones.
An Indian contract drug maker (specifically active pharmaceutical ingredients and custom provider of pharma chemistry needs) who seems to now be avoiding the post-pandemic slump for the industry.
A Latin American port and maritime logistics operator who will no doubt benefit from any increases in regional trade and commodity movements.
An Asian port operator with a global presence who has recently reported strong earnings.
A Middle East insurance stock pick with strong earnings and an equally strong share performance over the past several years.
A Latin American footwear and accessories stock pick who plans to become a global accessories conglomerate by acquiring international SMEs (something they are already doing).
A Mexican real estate stock pick benefiting from nearshoring demands for industrial and other types of real estate.
With some Chinese stocks though, it is often hard to find information (such as earnings) in English while their investor relations (assuming there even is such a page…) and corporate websites often leave more to be desired. For Example: One fund mentioned a Chinese airport stock that will benefit when air travel to and within China returns to normal. However, there is not much of a corporate website and apparently no IR page containing financials (at least nothing that I can find in English).
Elsewhere in Asia, Vietnam (specifically it’s real estate sector) is in a bit of a mess right now. Emerging markets are often prone to boom and bust real estate cycles or have developers who focus on building too many “high-end” properties. However, the Vietnam housing market is undersupplied (albeit there are still too many “high-end” development projects) and mortgage penetration remains modest.
Vietnamese corporate bonds, especially those issued by real estate developers, and the lack of liquidity to help fund the rollover of many (and complete real estate projects) has been dragging down overall stock market performance. Many bonds are also set to mature in the second and third quarters. Whether a new government decree loosening and extending payment regulations will help much (beyond giving real estate developers some needed breathing room) remains to be seen.
Nevertheless, consumption and lending in Vietnam remains a bright spot. Likewise, one Vietnam fund pointed out several Vietnamese stock picks (more or less the local equivalent of “Blue Chip” stocks) that have avoided the country’s regulatory crackdowns and stock market manipulation scandals.
Meanwhile, Chile, which has long been viewed as a rare economic and political bright spot in Latin America, has been presenting a mixed picture in recent years. Aside from the recent attempts to change the Constitution and news about the nationalization of lithium, excess consumption from last years pension fund withdrawals will likely ease due to inflation and rising interest rates. However, one fund noted the country’s utility sector and stocks have a brighter outlook after two years of being hit by regulatory uncertainty, cost inflation, and liquidity issues.
Finally, I will try to link stock tickers to and take screenshots of charts from Yahoo! Finance instead of Google Finance. It seemed like everything about Yahoo! went downhill quickly under Marissa Mayer - especially Yahoo! Finance when they eliminated what was probably the best stock newsfeeds (just headlines that could be quickly scanned - like what Finviz does) out there. After Finviz (primarily US-listed stocks), Yahoo! Finance now offers very good charts (powered by CapitalIQ) and a bit more data on international stocks than what Google Finance seems to offer. And of course, it’s free…
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Asia
East Asia
China
The February Monthly Commentary for the Templeton Emerging Markets Investment Trust PLC (LON: TEM) mentioned Hong Kong-based power tools manufacturer Techtronic (HKG: 0669 / FRA: TIB1 / OTCMKTS: TTNDY / OTCMKTS: TTNDF) who designs, produces, and markets power tools, outdoor power equipment, hand tools, and floor care appliances. The Company pioneered cordless power tools powered by lithium-ion rechargeable batteries and has manufacturing operations in China, Vietnam, the USA, Mexico, and Europe.
In late February, Techtronic shares first took an 8% hit when The Home Depot (NYSE: HD) warned of slowing demand for its do-it-yourself products and forecasted a decline in profit this year. Later the same week, shares took a bigger hit on a report from a little known short seller that stated:
A broad “toolbox” of accounting games has enabled TTI to engineer a profit margin trendline so perfect, it does not otherwise exist on Earth. Of every single public company over $1bn revenue in the entire world, TTI is the only one whose gross margin has gone up every half-year, sequentially, for ten years straight:
Of all businesses, how does a cyclical manufacturer achieve this statistical impossibility? The answer: By stuffing billions of dollars’ worth of routine expenses into various asset accounts, year after year. (Jehoshaphat Research is Short Techtronic Industries Ltd. (669 HK))
The short-seller sees “60-80% downside” for the stock while Techtronic denied the allegations without getting into the specifics as the report was conveniently released during the news blackout period before earnings (Techtronic rejects short-seller’s report as stock rebounds from US$4 billion sell-off in Hong Kong).
Nevertheless, Techtronic reported earnings on March 1st:
TTI’s Power Equipment business, representing 93.0% of total sales, grew 5.5% in local currency. MILWAUKEE grew 21.8% in local currency, offsetting declines in our consumer and floorcare businesses. In the Power Equipment business, TTI generated low double-digit organic growth in Europe and ROW along with positive growth in the core North American business. (Techtronic Industries Delivers Solid 2022 Annual Results)
Yahoo! Finance gives a P/E of 17.33 and a dividend yield of 2.19% with shares back down to pre-pandemic levels:
But still above long term averages:
