EM Fund Stock Picks & Country Commentaries (August 1, 2023)
Emerging market fund stock picks (from fund letters or interviews with fund managers) plus interviews with 3 fund managers - each with very different investing strategies for China & EMs in general.
We have a variety of emerging market fund stock picks from fund documents or fund manager podcast interviews to highlight this week (among other stocks also getting mentions late on in this post) with some quick takes being:
A Chinese restaurant stock pick with in-house brands. One of which has rapid (1-year) payback periods where one outlet throws off enough profit to pay for the opening of another outlet each year.
A couple of Indian utility stocks - one of which is based in Modi’s home state while the other two have juicy dividend yields.
Several lesser known Saudi or Middle East stocks as the region remains underinvested and could see more capital flows.
A unique stock offering exposure to uranium without all the exploration, development, mining, or processing risks that would come with owning a uranium mining play.
A couple of Brazilian infrastructure stock picks that should see long term growth and can also be considered as ESG stocks for those types of investors.
A lesser known Latin American stock exchange operator stock with a juicy dividend yield.
A Latin American water utility that’s rising, but still below it’s pre-COVID highs and paying it’s still paying a good dividend.
In a recent podcast interview covered in detail in this post, an experienced China VC fund manager discussed what he has learned from investing in China, how the foreign investment crowd has been consistently wrong there (e.g. foreign tech companies or their investors using the wrong business models, now they are chasing chasing AI mirages, etc.), and how he applies his China investing experience to other markets.
For example: What looks good on paper (e.g. a founder or professional with the right education and professional pedigree who speaks perfect English) is often the wrong kind of partner as you need a “warrior in the trenches.” This would be sound advice for any emerging and especially frontier market.
What surprises his firm the most though was how foreign investors outside China are shocked when regulatory changes are made as they are usually broadcast well in advance to those on the ground. For example: They avoided investing in education companies as for years they were being told by those in the business how they would not be able to list or sell their companies and that curriculum was a sensitive subject for Xi.
Thus, he feels there are serious pitfalls to straying outside your zone of expertise e.g. sectorial and geographic locations where you don’t have deep on-the-ground expertise. He also discussed the Chinese sectors he prefers to invest in that are less likely to be the subject of regulatory action and have good expansion potential in SE Asia and the Middle East.
In another podcast interview covered, a fund manager (who also invests globally and has a highly concentrated portfolio of lesser known stocks) said when he invests in China, he will look for stocks in industries that are as “far away” from those that the Chinese government might have an interest in. Even then, he will try to figure out what could still go wrong OR rather what they might take an interest in e.g. he will avoid restaurants stocks that serve unhealthy fried food that could be targeted in a health crackdown.
Since he is not typically investing in emerging market stocks the size of Amazon, etc. this fund manager also talked about how he will email the IR address on a company’s IR page. Then he will want to have a couple of calls with the IR director before talking to the CFO, CEO or founder, or someone on the Board. IF they don’t respond OR don’t have someone who can communicate with him in English (which he said is also a problem with Korean and Japanese stocks), he uses that as a filter and will avoid making an investment.
I should note that after I recently updated all the emerging links and resources on the front page of my website, I either emailed or used the contact forms on many of the sites listed to tell the site owners that I had them listed on the front page of my site which (along with my Substack) they might find some useful frontier emerging market resources on.
Guess how non-automated many responses I got? I can count them on my hand with fingers left over (and have found myself auto added to a few mailing lists…) plus some sites had broken contact forms (contact plugins often break or need updates…) or their spam software filters were set to a very high level (imagine being a frontier or emerging market investor and having your spam or website security software block the foreign IP addresses of those trying to contact you from such markets?). It’s the same problem with trying to reach out to real people on LinkedIn (who had gotten spammy themselves…) these days…
Granted, I was just sending a short introduction note and not asking a specific investment or customer-client question. But again, legitimate or potential client inquiries or investor questions on IR or contact pages should go to a human being’s email where they can quickly determine whether the inquiry is legit and needs to be followed up on. And there probably should be someone who can read or speak English to answer any foreign customer, client, or investor queries…
Finally, this post covers another podcast interview with an emerging markets fund manager who has a not so concentrated portfolio of 80 to 85 EM stocks focused more on infrastructure plays around the world. When it comes to investing in China, he says you need to sit down and try to understand the five and ten year strategies of the Chinese government and then invest along side of them. IF you can do that, then you usually make good returns.
In other words (when it comes to investing in China and other emerging markets), these three fund managers have almost completely different strategies or ideas. Nevertheless, all are worth taking into consideration.
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For a further disclaimer and an explanation of the reasoning behind these posts: DISCLAIMER: EM Fund Stock Picks & Country Commentaries Posts.
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