EM Fund Stock Picks & Country Commentaries (January 24, 2023)
EM fund China, Vietnam, African frontier market & South Africa stock picks are in focus this week along with fund stock picks and commentaries for other markets (e.g. India, Brazil, Turkey, etc).
Some Q4 EM fund reports have dropped with China, Vietnam, African frontier market, and especially South Africa stock picks being in focus this week (along with other countries or regions, such as India, Brazil, and Turkey).
Some global MNCs maintain stock listings on the JSE while many South African stocks are well managed and have operations in other African frontier markets (as their managers know how to deal with difficult frontier market environments) or around the world. There are also a number of interesting South African REIT stock picks (some even have property portfolios in Western or Eastern Europe for diversification).
As for African frontier markets, a Canadian listed oil exploration stock with exposure to several African countries plus an Australian listed platinum miner have mentions this week. The latter stock is poised to benefit from vehicle manufacturers needing platinum to help lower emissions.
There is also an interesting Vietnam port stock that should benefit from increased trade and the manufacturing shift to the country, while a Vietnamese airport retail operator stock will benefit from more tourism arrivals (Note: 2023 will be Vietnam's Year of the Cat which is considered a “good” year by Vietnamese).
Finally, Georgia (as in the country…) makes an appearance (with two EM funds mentioning two potential stock picks there) while another fund explained how Lula’s presidency could be bad for minority investors in Brazilian state-controlled Petrobas.
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The Coronation Global Emerging Markets Fund (IE00B553TV27) Q4 commentary stated their belief that many Chinese stocks are still significantly undervalued with a number of holdings still having upside in the 50-100% range. However, they also had this comment about Alibaba (NYSE: BABA):
Although it appears very cheap on valuation metrics, our conviction in the long-term moat around the business has deteriorated over time (and the position size had accordingly already been reduced some time ago).
In addition, the commentary mentioned South African controlled Naspers (JSE: NPN / FRA: NNWN / OTCMKTS: NPSNY) / Prosus (JSE: PRX / AMS: PRX / OTCMKTS: PROSY / ETR: 1TY) which derive the bulk of their returns from the latter’s Tencent (HKG: 0700 / LON: 0LEA / FRA: NNND / OTCMKTS: TCEHY)1 stake and Tencent Music Entertainment (NYSE: TME) (the leading online music and audio entertainment platform in China) which more than doubled during the quarter (after performing poorly in 2021):
TME’s closest Western equivalent would be Spotify and we have written previously about why we like TME – low penetration of music streaming in the country and significant opportunity to monetise existing customers. This, coupled with a decent social media business (although the main attraction for us is the music streaming business), and valuable stakes in listed businesses like Spotify, Warner Music Group, and Universal Music Group meant that TME was trading on 7x 2023 earnings (ex-cash and listed assets) at the beginning of the quarter despite having years of significant earnings growth ahead of it. Even with the doubling in the share price, it remains one of the most attractive internet assets in our investment universe…