EM Fund Stock Picks & Country Commentaries (September 12, 2023)
Emerging market fund stock picks (from fund letters or fund manager interviews) + recent Adani Group investors get the last laugh, domestic Indian investors neutralize foreign hot money, and more.
We have a variety of emerging market fund stock picks (mainly from US fund letters or fund manager interviews) to highlight this week (among other stocks also getting mentions late on in this post) with some quick takes being:
The Chinese bank stock pick that is also owned by a well-known value investor.
Several Chinese or Indian stock picks in old-school industries or sectors - some of which (e.g. coal, etc.) would not be approved of by ESG investors.
An electric scooter stock pick that still has some question marks as to whether they can expand into other markets - especially with the sodium-ion powered scooter they are developing and getting ready to mass produce.
A SE Asian clinical laboratories stock pick who’s test results are on par with international laboratories and is a leader it it’s respective market.
A look at all the publicly listed Adani Group companies that were targeted by short-seller Hindenburg Research plus piled on by the media. Ironically, most are regaining their lost ground on the stock charts.
What makes a popular Indian bank stock attractive for investors.
In a recent podcast interview, an emerging market fund manager noted how EMs are not your father’s EMs e.g. volatility between DMs and EMs is now at par. With the USA accounting for 2/3rds of the developed equity market, any problems there (e.g. Silicon Valley Bank collapsing, etc.) tends to impact the whole market whereas individual emerging markets like South Africa (experiencing “state collapse”…) and Turkey (recent earthquakes and elections…) are more isolated from one another.
Our previous Tuesday posts (August 22, August 29, and September 5) discussed some fund manager interviews in detail where the importance of country selection was discussed e.g. one had pointed out how 80% of excess returns from emerging markets are explained by which country you are invested in - not which sector, fund, or stock.
However, this particular fund manager wants to get the stock picking right, not get guessing on some sort of global economic trend right. He also said you can build a well diversified portfolio (especially if your fund is small and you can invest in smaller EM stocks) anchored on a couple of big EM stocks (the usual suspects…) to limit your risks.
Either focusing on country selection or stock picking can make sense and would have their pluses and minuses. I would add that you also have the unique and potentially volatile political situations in each country that are difficult for outsiders to figure out. For example: As mentioned yesterday, the Argentina elections that could lead to dollarization might be a game changer that finally turns (what is otherwise a rich, but horribly corrupt and mismanaged) country around.
But at this point, investing in Argentina based on what might happen with the coming elections and their aftermath is more or less a game of roulette. Nevertheless, there are bound to be some Argentine stocks on our Argentina ADRs list that are worth considering based on their own merits and not the country’s.
In another recent interview, a fund manager who avoids hot sectors said that after the short-seller report about the Adani Group and media pile-on, he had investigative journalists look into the group and did other due diligence. What they found was completely different from what was being reported by the media and so they invested.
The result? A 50% gain at the time the interview was done. In other words, being a contrarian, not following the herd, and not listening to the media can pay off handsomely.
Finally, a fund manager noted in another recent interview we cover how, from late last year until this summer, there was something like $23-27 billion worth of foreign or hot money selling on the Indian stock market with hardly a negative market reaction. That amount of foreign selling just a few years ago would have seriously dented the market’s performance. But thanks to domestic Indian investors, he says India is probably the only emerging market where domestic investors can neutralize the foreign hot money fluctuations.
Of course, the foreign investor herd tends to pile into a handful of Indian stocks that also have listings on foreign stock exchanges. Therefore, these Indian stocks may experience more volatility from foreign fund flows than their lesser known peers - some of which we cover in our India tagged posts.
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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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For anyone interested in China, the following two macroeconomic podcasts that might be worth listening to. They don’t cover any particular stocks or investing strategies and no doubt those taking part needed to be guarded with their comments given where they work.
Episode 20 - MOODY'S TALKS - EMERGING MARKETS DECODED 19:07 Minutes
In this episode, Moody’s analysts discuss the reasons for the current property-sector stress and the potential effects for developers, banks that finance them, local authorities and the economy.
Don’t expect anything earth shattering from Moody’s.
This second podcast from fund manager Abrdn includes a transcript (on the Abrdn website here):
The cusp of a lost decade, is China at risk of Japanification? (Emerging Markets Equities Podcast) 28:24 Minutes
In the latest episode of the Emerging Markets Equities podcast, Nick Robinson sits down with Bob Gilhooly to look at all things China. Covering geopolitics and potential comparisons between China today and Japan 30 years ago.
For a far more interesting discussion covering China and emerging market investing in general from a fund manager who can speak more freely: