EM Fund Stock Picks & Country Commentaries (July 11, 2023)
EM Fund Stock Picks & Country Commentaries (July 11, 2023)
A variety of emerging market fund stock picks (from US or international fund letters or interviews with fund managers) plus the need and some ideas for uncrowded emerging or frontier market trades.
For this week, we have a variety of emerging market fund stock picks (from US or international fund letters or interviews with fund managers) to highlight this week with some quick takes being:
Some updated stats or charts on a number of popular or widely held emerging market stocks.
Two Korean entertainment stock picks who’s shares have already skyrocketed thanks to k-pop. However, one has already come down to more reasonable levels.
An Asia based developer and operator of marinas for luxury yachts.
A SE Asia beverage stock pick that is one of the largest food and beverage players in the region.
A Latin American trade finance focused bank along with a Mexican business focused bank. Their shares have generally been outperforming recently - no doubt being helped by nearshoring trends and the easing of supply chain disruptions from COVID.
A Latin American pharma stock pick who’s shares have largely been going in the right direction for about a decade now.
A Brazilian stock pick that is said to have one of the lowest production costs for sugar and ethanol on the market.
In last week’s post, we (or the funds covered) observed how the investing herd has moved into Chinese automation (as in industrial automation, robotics, digitization, etc.), healthcare (including biotech, medical devices, etc.) and/or consumer goods or services sectors along with anything involving AI (artificial intelligence).
Again, investing in all of these “hot” sectors intuitively makes sense as there are clear business cases for it (e.g. aging populations, nearshoring, etc.). However, these are also increasingly crowded trades and valuations may already reflect it.
Not to mention, I literally just received (and maybe you have as well…) this email from Seeking Alpha a few hours ago:
At this point, I am not so certain there are too many “under-the-radar AI stocks” left to be hyped or pumped - at least based in the USA…
Here is a brief write-up from April (our stock pick tear sheets have since gotten more detailed…) about a definitely under-the-radar Chinese AI stock that was already talked about by a fund manager in a March podcast: Bairong Inc (HKG: 6608 / FRA: 6B5): AI/Digital Transformation Services for Chinese Banks. However, it has not been an exciting trade for investors as Xi cracks down on the banking sector:
For this week’s post, we note a fund manager who is taking Chinese tech stocks out of his doghouse simply because the sector is too important for China. He also noted how self-destructive China has behaved towards their tech sector and doubts it will continue.
Again, this makes sense - until you remember how the number one priority of any regime is to always stay in power and to neutralize any threats (real or imaginary) to it’s power. Just ask any Zimbabwean and Venezuelan you may know about how destructive regimes who feel threatened can be…
We also note a fund manager investing in micro or small cap Hong Kong stocks. This is definitely not something Seeking Alpha will be sending you emails about and the five year performances of various small cap tracking indices reflect it (as they are all down). Although the fund manager does not mention any specific stock names, I am sure he has been able to find small cap Hong Kong stocks (as there are literally hundreds if not thousands of listings to choose from there) bucking the trend.
Likewise, we briefly mention another fund manager who is investing in government debt of frontier markets in Africa or in the Caucasus that most people would have trouble locating on a map.
Why? The fund manager makes a point of saying that most emerging market investors are investing in the exact same investments (and the same could probably be said for our friends at Seeking Alpha…). Likewise, smaller frontier markets are less impacted or correlated with the rest of the world and tend to have their own unique set of local performance drivers or risks.
I am not so sure how easy it would be for the average fund manager or sophisticated retail investor (especially anyone with USA citizenship…) to directly invest in debt or currencies from exotic frontier markets in Africa or the Caucasus. But IF you can, these are not going to be crowded trades where the foreign investors cut and run at the moment the headlines about the country turn ugly.
With that in mind, some uncrowded country trades might be investments in:
Taiwan - given the negative geopolitical headlines headlines. But Taiwan is more than just TSCM and tech hardware e.g. : Gourmet Master (TPE: 2723): Taiwan's Rapidly Expanding Version of Starbucks and Bafang Yunji International (TPE: 2753): Turning Things Around and Expanding in HK Plus the USA
South Korea - as it’s often overlooked by foreign investors. Korea is also more than just Samsung (see Mirae Asset Securities' Korean Stock Picks (May 2023) for some ideas).
SE Asia - albeit mind the currency volatility outside of or for anything not listed in Singapore.
South Africa - as the headlines are ALL negative given the blackouts and central government corruption and incompetence. South Africa also has more to offer than just mining stocks e.g.: Business Day TV Daily Stock Picks (June 2023).
Politically troubled Latin American countries - Colombia, Peru and perennial basket case Argentina come to mind. Albeit, you will need to have a stomach for risk if investing in natural resource stocks as they often become political footballs when the Left is in charge e.g. Petrobras…
Finally, the same could be said for certain unloved sectors - oil and coal come to mind as ESG (at least in the USA…) increasingly becomes politically toxic (See: The ESG "Cover Your Ass" Tour Begins As Managers Scramble To Remove References In Pitch Decks and Bankers Bury ‘ESG’ in Pitch Books to Head Off Republican Attacks). Not to mention, something other than windmills and solar panels will need to power all those EVs and their batteries.
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