EM Fund Stock Picks & Country Commentaries (October 24, 2023)
Links to more emerging market funds noting when their latest factsheets and/or commentaries have been updated + the broken Chinese social contract, the consolidation mirage, etc.
We have a variety of emerging market fund stock picks, research, observations to highlight this week with some quick takes being:
Two recent and interesting China podcasts that both contained some good insights.
A Middle East education stock along with a hospital stock - both have extensive footprints.
A much lesser known Latin American eCommerce stock with a differentiated business model.
A good piece or essay on not investing in what otherwise might potentially be hot Indian multibaggers that also clearly have corporate governance concerns.
Links to more emerging market funds noting when their latest factsheets and/or commentaries have been updated.
A recent podcast noted how many markets in China are fragmented and “ripe for consolidation.” But for some reason, consolidation and the economies of scale that it brings has turned into a mirage for many sectors with the bigger or leading players struggling for traction (e.g. as noted yesterday: In Depth: The struggle facing big-box supermarkets in China).
The latest case involves Boqii Holding Ltd (NYSEAMERICAN: BQ) who tried to consolidate the fragmented pet sector, but is now delisting from the NYSE. It’s not clear whether they are having execution problems or it’s simply that Chinese consumers prefer to shop at their neighborhood pet stores where the owners probably know them and their pets by name.
I suspect it’s more of the later and the fact that the people (probably the owner himself) working in the locally owned pet store know more about their individual customers and their needs than any big corporation trying to use “big data,” AI, Apps, websites, social media, and analytics to do the same.
Some years ago in SE Asia, a large supermarket chain recruited a number of master butchers from the UK and Europe. Apparently, many (especially older) expat customers from Europe are still accustomed to going to neighborhood butcher shops to buy meats and ask for advice from a master butcher who probably knows them by name along with their buying habits.
While Asian butchers are ok and cheaper to hire, they tend to not be experts (unless they have worked abroad, etc.) about imported red meats, lunch meats, or sausages preferred by westerner expats. These expat customers naturally gravitated towards buying (or being upsold on better cuts or given preparation advice…) from the western expat master butchers they saw working in the stores.
This supermarket chain soon started crushing all the competition when it came to to meat sales. Remember, good red meat like steak, mutton, lamb, etc. would all be imported and sell for a premium with high margins in SE Asia.
But then there was a change in ownership or management. The new bean counters decided they no longer needed the “expensive” expat master butchers anymore and got rid of nearly all of them. They seemed to had done this on the assumption they would still be able to keep most of the sales they had generated.
The results were entirely predictable and their meat sales eventually plunged and meat wastage probably increased. And some of those laid off expats were no doubt hired by smaller rival chains or set up their own small butcher shops to cater to expat customers - creating new competition in a premium meat category.
I was also recently listening to more of a political podcast where someone commented how a local butcher shop had just opened where he is in the USA (meaning big box supermarkets have not killed off the concept). He said he will gladly pay a few extra dollars to support them rather than a big supermarket chain (who might also be supporting political causes he disagrees with, but that’s a whole different issue…).
My point it that fragmented markets “ripe for consolidation” along with the use of expensive “big data,” AI, Apps, websites, social media, and analytics to figure out what faceless customers want will not automatically make a company successful. The level and ruthlessness of competition in China also makes it a hard market to be successful in - especially now IF you operate in a non-priority sector.
In another recent podcast, it was noted how Chinese data is not that bad; but there is an expectations gap and confidence problems involving the middle class from years of tech crackdowns, lockdowns, and property sector problems. Corruption crackdowns and Xi’s purges have also hit the administrative sector and has led to inertia with many people sitting on their hands waiting for direction from the top (or not wanting to stick their heads up and risk getting it cut off). Whether China can overcome these problems and repeat what was started in 1998 when the state-owned sector was cleaned up (freeing up massive resources…) remains to be seen.
However, it was also pointed out that China’s bigger problem is the shattering of the social contract over the past year+. I would add that this is something that has happened in pretty much every country that did draconian COVID lockdowns.
Apparently, the perception in China apparently is this now: Things that in the past might have only happened to dissidents could now happen to anyoneand the Party can go crazy. In other words, the social contract has been broken and like a bad marriage, its not going to be easy to repair - if it can be repaired at all...
Finally, I have added more emerging and frontier market funds to this post’s template indicating when their last factsheets and any more detailed commentaries were published. Many are at the end under the Various Emerging or Frontier Markets subheading.
This post also includes links to other interesting or more in-depth research pieces or articles from fund managers, etc. Again, you will need to be mindful of any disclosure pop-ups asking what type of an investor you are and your location.
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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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🗄️ Fund documents / updates; ⚠️ Disclosures or restricted access e.g. based on your location, investor status, etc.; 🎥 Video; 🎙️ Podcast; 🎬 Webinar; 📰 Newspaper/magazine article; 🗃️ Archived article; 📯 Press release; 🔬 Research analysis (including articles/blog posts from fund managers, etc.)
Freight and ocean rates are good economic indicators:
🔬 Air freight rates are attempting takeoff in Asia (Macrobond)
It is interesting, however, that Seoul and Shanghai are seeing an upturn recently. This could dovetail with the OECD leading indicator we published last week, showing relative optimism for China.
This piece includes some good country charts or graphics:
🔬Three Reasons to Allocate to EM Bonds Now (Van Eck)
Note this recent hour long emerging market bond webinar available on demand once you register: