EM Fund Stock Picks & Country Commentaries (October 10, 2023)

A variety of emerging market fund stock picks + EM stock markets are not overpriced (unlike every other asset class), EM value investing tips, Xi is trying to change China's economic model, etc.

We have a variety of emerging market fund stock picks to highlight this week (among other stocks also getting mentions late on in this post) with some quick takes being:

• A Korean stock that offers a compound pricing opportunity - something that often arises with Korean preferred shares vs. common shares.

• A SE Asian dairy stock along with a SE Asian lifestyle retail stock with a regionwide footprint.

• A Vietnam stock that is benefiting from more Vietnamese opening brokerage accounts.

• An Indian dairy stock who is a leader at home and also exports dairy related products abroad.

• Some stock picks from the unloved Greek banking and Polish utility sectors.

In a recent podcast interview, one investor observed how everything (from global real estate to fine art) is overpriced with the aberration being stock markets outside the USA (including emerging markets and non-USA developed markets). Why that is bewilders him; but he said the rest of the world is still investable (along with quality US stocks).

My partial explanation for this would be the relative lack of investment opportunities for those outside the USA and a few other developed countries. IF you live in an emerging market (particularly those in Asia), your investment options for excess savings will tend to be the following:

1. Put it back into your or another business which risky if there there are no good business opportunities or the economy is bad.

2. Put it in a local bank and allow currency devaluations, inflation, bank failures, and even government expropriation to eat away at it.

3. Buy gold at the local gold shops and store it at home in a place that is hopefully hidden and secure from crime.

4. Buy property which is why property prices are ridiculously high and yields just as ridiculously low all over Asia.

5. Buy Toyotas (which can also be rented out as taxis, etc.) and white goods like well made appliances. Westerners don’t think of such depreciating assets as stores of value, but many frontier market residents (especially Russians, Africans, etc.) do.

6. Launder move money abroad into hard currencies or property. This is increasingly harder to do at least for larger sums of money plus I know its getting harder and harder for some nationals like Iranians to open bank accounts even in countries like Malaysia, etc. It will also often involve taking a haircut plus other risks (e.g. Russians having their overseas assets frozen and potentially confiscated, etc.)

Stock market investing in local markets is considered akin to gambling in many emerging markets which have often seen speculative and often spectacular retail investor bubbles e.g. here is an interesting video about the one that occurred in Taiwan when people began using their excess savings to play the markets:

Many locals in emerging markets would be fully aware of the dodgy accounting and other practices (like insider trading, front groups for politicians or others to secretly control or have ownership stakes in companies, related party transactions, etc.) in such markets.

Finally, I should point out that investors in emerging markets also got burned in the 2008 Financial Crisis by garbage financial products produced by the likes of Lehman Brothers and/or sold by local financial institutions:

Lehman fallout hurts Asian structured notes investors (Reuters) Sept 2008

Asian retail investors who bought structured products linked to the collapsed U.S. investment bank Lehman Brothers are complaining about poor advice from banks and have urged authorities to save them from losses.

Investors in Hong Kong, Singapore and Indonesia have over the past week expressed outrage that the bond-like products they purchased were actually complex derivatives and they stood to lose most or all of what they had invested.

Nevertheless and according to the first interview covered in this post with a value fund manager, emerging markets are a fertile ground to look for value - so long as you watch out for a few things and “go with an open mind, not a hole in your head!”

---

Disclaimer. The information and views contained on this website and newsletter is provided for informational purposes only and does not constitute investment advice and/or a recommendation. Your use of any content is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the content. Seek a duly licensed professional for any investment advice. I may have positions in the investments covered. This is not a recommendation to buy or sell any investment mentioned.

For a further disclaimer and an explanation of the reasoning behind these posts: DISCLAIMER: EM Fund Stock Picks & Country Commentaries Posts.

Note: Where possible, company links are to their respective investor relations or corporate pages. Region and country links are to our ADR or ETF pages where there are further country specific resources (e.g. links to local stock markets and media websites). Please report any bad links in the comments section.

---

The VALUE: After Hours Podcast recently interviewed Juan Torres, a fund manager on the Schroder Global Value Team:

VALUE: After Hours (S05 E35): Schroder’s Torres On Emerging Markets Deep Value And Type I And II Errors (YouTube) 1:03:04 Hours (The Acquirers Podcast) Sept 2023

In their latest episode of the VALUE: After Hours Podcast Jake Taylor and Tobias Carlisle are joined by special guest Juan Torres to discuss:

• Value Investing in Emerging Markets: Opportunities in Uncertainty

• How to Invest in China Despite Political Risks

• What Makes the US a Uniquely Fertile Ground for Startups?

• Reducing Type 1 Errors Significantly Improves Your Investment Performance

• Alibaba: A Lot More Interesting Than 3 Years Ago

• Why Value Investing and Emerging Markets Have Underperformed for 10+ Years

• How to Stay on the Right Side of Information Asymmetries in Deep Value Investing

• The Challenge of Valuing Companies with Exponential Growth Potential

• How to Protect Your Portfolio from Existential Risk

• Why Emerging Markets Are Not All Created Equal

• How to Screen For Emerging Markets Stocks

• Why Emerging Market Investors need English accounts

• How to Get Comfortable with International Financial Reporting Standards

At the beginning of the interview, Torres made the point that if you are doing value investing, many emerging markets look like the American markets in the 1930s when Benjamin Graham was developing his theories e.g. accounting is not the best, there is alot of uncertainty, etc. Because there are so many inefficiencies in emerging markets, its a great place to hunt for value.

While specific stocks (except for Alibaba) were not discussed in the interview, the entire interview is worth listening to with some quick highlights or advice for investors in EMs being: