EM Fund Stock Picks & Country Commentaries (June 20, 2023)
EM Fund Stock Picks & Country Commentaries (June 20, 2023)
A range of emerging market fund stock picks from US and UK funds plus why you should not rule out Latin American (just "commodities") or SE Asian (a "palm oil plantation with nice beaches") stocks.
We have a variety of emerging market fund stock picks (from both US listed and London listed funds) to highlight this week (among other stocks also getting mentions late on in this post) with some quick takes being:
Some Taiwanese tech stocks who, despite the tech and USA slowdowns, have shares that have recently taken off like rockets with AI hype as a possible explanation for some outperformance.
Among those outperforming Taiwanese stocks are two tech stocks who's performance can also be explained by an improved product mix and lower inventory levels.
Three Taiwanese tech stocks that were sold due to slowing demand for Apple products.
Two Southeast Asia financial services or financing stocks who’s histories, P/Es, dividend yields, or charts make them intriguing for investors.
Updates for a number of key Latin American stocks that tend to come up as foreign fund holdings.
To outsiders, Latin American politics always seems like a never ending seesaw battle between the right and the left. Countries will become investor and free market friendly under a right leaning government only for a little while (albeit in the case of Chile, it was for a couple of decades). Then a Left leaning government will take power and the country will lurch back towards statism.
Apparently, Brazil’s Lula has surprised the market by not being as bad as expected (he is also checked by a right leaning Congress). It’s Colombia under the recently elected (and former communist guerrilla) Petro that has investors more concerned e.g. he recently removed the majority of his cabinet - including the orthodox Finance Minister who was the last point of trust and stability from the market’s perspective.
In contrast, Mexico continues to chug along economically albeit Left-leaning AMLO (President Andrés Manuel López Obrador) has targeted or threatened to target particular sectors of the economy. However, one fund in this post has pointed out there is some uncertainty as to how a US recession might impact the country this time around.
It was also pointed out by a fund that China’s lacklustre re-opening and recovery has weighted on the Latin American materials sector. However, Latin America is more than just commodities and even key materials stocks (like Brazilian iron ore giant Vale (NYSE: VALE) and steel producer Gerdau (NYSE: GGB) covered in this post) have significant vertical integration.
Meanwhile, and just like there is a (mis)perception that Latin America is all “commodities” and Russia is just a “gas station with nukes,” there seems to be a mindset among foreign investors that SE Asia (sans Vietnam) is just a “palm oil plantation with nice beaches” (a topic worthy of a more detailed future post…).
SE Asian stock valuations are often cheap, but the funds covered in our fund posts rarely talk much about owning stocks outside of Vietnam. Even then, it tends to be the same stocks that come up (e.g. one of the two big banks in Indonesia, the telco there, etc).
Add in currency volatility and SE Asian stocks can become a “value trap” for foreign stock investors or funds. Without more participation from local investors (who continue to prefer investing speculating in property over stocks) or more “hot” local stocks in “hot” sectors like EVs or tech, its hard to see foreign funds getting more excited in what the region has to offer beyond just Vietnam.
Nevertheless, should you completely rule out investing in Latin America or SE Asia? As one fund covered in this post noted, so long as a country remains stable, you just need to get your stock analysis right.
For example: The remaining Colombian ETF might not make sense right now given the direction the country is heading in under Petro:
However, Tecnoglass (NYSE: TGLS), which we recently profiled (Tecnoglass (NYSE: TGLS): An Architectural Glass Stock With an Unbreakable Recent Performance) among our other Colombian tear sheets, is still looking strong despite the political uncertainties where it’s based:
The bottom line: Cash rich stocks with good management teams who can generate good long term internal returns will increase in value for shareholders. You may just need to be patient and have a willingness to not always follow the herd or indices into the usual stocks in the usual places.
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