Emerging Market Links + The Week Ahead (February 13, 2023)
Vanguard-BlackRock's Adani exposure, 3 airport operator stocks target Africa, MercadoLibre, more China research, SE Asia Internet Report, Brazil's coming exodus & the week ahead for emerging markets.
For China investors, there are a couple of thought provoking research reports covering what could drive its markets in 2023, the country’s existential threat to other emerging market economies, insights from a discussion with the American and European chambers of commerce, etc.
Meanwhile, Vanguard Group and BlackRock both have exposure to the Adani Group conglomerate targeted by short-seller Hindenburg Research (see: Our Reply To Adani: Fraud Cannot Be Obfuscated By Nationalism Or A Bloated Response That Ignores Every Key Allegation We Raised and Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History). The exposure would be small but investors investing in India will want to check any mutual funds and especially Indian ETFs. EM investor Mark Mobius says he avoided the Adani group because of the high debt while the scandal leaves a cloud over India (e.g. role of regulators) and the infrastructure projects the group was involved in.
Finally, we have some stock picking articles or mentions for MercadoLibre (Latin America’s version of Amazon), Enaex (a Chilean rock fragmentation service provider and the 3rd largest producer of ammonium nitrate), and three airport management stocks targeting Africa.
$ = behind a paywall
FYI: These moves may not have gotten much attention in western media BUT are definitely being noticed elsewhere by people who will now park their money in Dubai and Singapore:
Xu believes that US' transferring of Russian assets to Ukraine will only backfire in the long term. It shows that the assets in the US of any individuals may be deprived due to international relations. This will consume US' credibility to a large extent, leading to many countries in the non-Western camp to step up efforts to "de-dollarization," and the "dollar hegemony" of the US will be dealt a heavy blow and risk facing with an end.
China: What could drive its markets in 2023 (Capital Group)
Reopening could be a positive catalyst for valuations
Government is committed to stabilizing the property market
Regulatory fog is clearing over China’s tech sector
Beijing needs more growth to support policy agenda
A reset in U.S-China relations
Discussion with the American and European chambers of commerce on how global companies are investing in China as the country accelerates its reopening and refocuses on the economy.
Among US firms doing business in China, we estimate 75% have remained profitable during the pandemic. Companies that sell their products in China have fared better than companies that are in the supply chain business and sell their products abroad.
European companies are here to stay in China. As China reopens, European companies are ready to develop new business, new cooperation, and new partnerships in China.
Localization can be challenging and expensive. European and American companies that have the size and scale to absorb the costs are doing so, but smaller companies are taking more of a wait-and-see approach.
To be successful in China companies need to be comfortable operating under uncertainty. Many Chinese regulations are still work in progress. It is important to understand both the letter of the law and the spirit of the law.
It’s hard to predict exact timing of the Chinese economic rebound, but it is clear the worst case scenario has been avoided. Measures from the People’s Bank of China have reduced tail risk significantly, making it likely for the Chinese banking system to remain strong and sound and ready to so more to support the economy.
It is in the interest of China and the US to find ways to work together while managing their differences, and we are hopeful that the two governments will try to improve relations.
China’s Existential Threat to Emerging Market Economies (The Emerging Markets Investor)
This process of basic industrialization was achieved with foreign investment and the transfer of mature technologies from the U.S. and other developed countries.
Two things happened to dramatically undermine this trend.
First, the neoliberal revolution of the 1980s spawned the “Washington Consensus” for free trade and capital movements and the great wave of hyper-globalization of the past decades.
Second, in the 1980s, China entered the phase of rapid development, following the path set by Brazil and others: exploiting foreign investment and technology transfer to dominate the production of the basic inputs of industry (steel, cement, ammonia and plastics) and the mass production of consumer and capital goods.
For developing markets, China’s rise is an existential threat. Unless they can defend themselves with tariffs, they are condemned to handing over their consumer demand for manufactured goods to China in exchange for commodities.
2023 Southeast Asia Internet Report (Asian Partners) PDF File
NOTE: Hundreds of interesting charts and slides…
The Vanguard Group and BlackRock have exposure to the Adani Group conglomerate.
Both firms are among the top 20 shareholders of Adani enterprises. Vanguard owns 0.75% of Adani Enterprises, according to FactSet data updated as of Feb. 3.
BlackRock is a shareholder of the company via two affiliates: BlackRock Fund Advisors which holds 0.57% and BlackRock Advisors (U.K.) Ltd is a shareholder with a 0.17% stake.
The Adani cloud over India (Aljazera)
The recent set of allegations have raised questions about the tycoon’s meteoric rise and the role of regulators.
In India itself, one likely impact of the report could be the slowing down of the slew of infrastructure projects the Adani group has contracts for.
“I was not interested in the group because of the high debt. In view of the rising interest rate environment globally, heavily leveraged companies should be avoided.”
On the specific issue of how this could make a difference to investors looking at India, he was clear in his opinion. “Given the number of other financial scandals around the world, this incident is not significant in the global environment. However, the degree to which this particular incident has been given international press coverage may be positive in the long run since it shows that India is a significant market with major companies on par with other international firms.”
Note: Part of a thread about Adani’s Middle East connections includes this video of MBS talking about his vision for Saudi Arabia and the region:
TAV, Vinci, CAAP…strategies to conquer African airports (The Africa Report) $
NOTE: Article is completely paywalled BUT I have heard of the airport operators mentioned and the included links are to their investor relations pages.
Some have already won their first African contracts, while others are still waiting, responding to calls for tenders or favouring direct contacts with states which are tempted to entrust the management of their airports to a private concessionaire.
Enaex - LATAM Stocks Investment Analysis #12 (LATAM Stocks)
Enaex is a Chilean rock fragmentation service provider and the 3rd largest producer of ammonium nitrate in the world.
Enaex stock is a unique vehicle for investors seeking exposure to the commodity markets without taking specific commodity price risk or mine specific risk. In an inflationary environment with continued money printing by central banks and supply chain constraints, I expect Enaex stock to provide value to shareholders long term.
The company’s majority shareholder, Sigdo Koppers S.A. owns 60.7% of the company. Sigdo Koppers is a Chilean conglomerate with operations in a wide range of industries, they have been the company’s controlling shareholder since 1993.
MercadoLibre: High-Quality Exposure To Emerging Markets (Seeking Alpha)
Sitting down to write this article, it feels tough to fit all the details in. MercadoLibre (NASDAQ:MELI) is one of those companies with so many moving parts, so many irons in the fire, that it's tough to bring it all together into a cohesive look at the business in a concise way. That's likely because the best analog to MELI in America has always been considered to be Amazon (AMZN). That's mostly true. However, because of MELI's leadership in what has been a geography behind America in terms of technological development, the company has taken a significant role across the spectrum.
As a truly one-stop shop, the company's many different lines feed each other in ways that create what is likely one of the best examples of a network effect I've seen.
Brazil and the Return of Neomercantilism (The Emerging Markets Investor)
Brazil, which in the past largely avoided the drain of human and financial capital, now faces an exodus, with Portugal and the U.S. as the favorite destinations. With the return to power of the leftist Lula — reenergized, more bitter and radical after his two-year prison confinement — this flight from Brazil is sure to accelerate.
However, Lula’s main problem is that his Labor Party lacks credibility. Lula pretends that the rampant corruption and incompetent management of the last PT government (2002-2016) never happened, but for most Brazilians the memory of that period is still vivid. No one has forgotten that the previous PT government’s (2002-2016) efforts to implemented similar policies were crippled by graft and poor execution, and expectations are high that the same will occur again.
Mark Coombs, chief executive of Ashmore said the macro environment in 2022 was “complex” but the headwinds it produced were “now receding and leading to an increase in investor risk appetite”.
Note: Investing.com has a full calendar for most global stock exchanges BUT you may need an Investing.com account, then hit “Filter,” and select the countries you wish to see company earnings from. Otherwise, purple (below) are upcoming earnings for US listed international stocks (Finviz.com):
Click here for the full weekly calendar from Investing.com containing frontier and emerging market economic events or releases (my filter excludes USA, Canada, EU, Australia & NZ).
Frontier and emerging market highlights (from IFES’s Election Guide calendar):
EM ETF Launches
Climate change and ESG are clearly the latest flavours of the month for most new ETFs. Nevertheless, here are some new frontier and emerging market focused ETFs:
12/13/2022 - Virtus Stone Harbor Emerging Markets High Yield Bond ETF VEMY - Active, fixed income, junk bond, emerging markets
9/22/2022 - WisdomTree Emerging Markets ex-China Fund XC - Passive, equity, emerging markets
9/15/2022 - KraneShares S&P Pan Asia Dividend Aristocrats Index ETF KDIV - Passive, equity, Asia, dividend strategy
9/15/2022 - OneAscent Emerging Markets ETF OAEM - Active, Equity, emerging markets, ESG
9/9/2022 - Emerge EMPWR Sustainable Select Growth Equity ETF EMGC - Active, equity, emerging markets
9/9/2022 - Emerge EMPWR Unified Sustainable Equity ETF EMPW - Active, equity, emerging markets
9/8/2022 - Emerge EMPWR Sustainable Emerging Markets Equity ETF EMCH - Active, equity, emerging markets, ESG
7/14/2022 - Matthews China Active ETF MCH - Active, equity, China
7/14/2022 - Matthews Emerging Markets Equity Active ETF MEM - Active, equity, emerging markets
7/14/2022 - Matthews Asia Innovators Active ETF MINV - Active, equity, Asia
6/30/2022 - BondBloxx JP Morgan USD Emerging Markets 1-10 Year Bond ETF XEMD - Passive, fixed income, emerging markets
5/2/2022 - AXS Short CSI China Internet ETF SWEB - Active, inverse, thematic
4/27/2022 - Dimensional Emerging Markets High Profitability ETF DEHP - Active, equity, emerging markets
4/27/2022 - Dimensional Emerging Markets Core Equity 2 ETF DFEM - Active, equity, emerging markets
4/27/2022 - Dimensional Emerging Markets Value ETF DFEV - Active, equity, emerging markets
4/27/2022 - iShares Emergent Food and AgTech Multisector ETF IVEG - Passive, equity, thematic [Mostly developed markets]
4/21/2022 - FlexShares ESG & Climate Emerging Markets Core Index Fund FEEM - Passive, equity, ESG
4/6/2022 - India Internet & Ecommerce ETF INQQ - Passive, equity, thematic
2/17/2022 - VanEck Digital India ETF DGIN - Passive, India market, thematic
2/17/2022 - Goldman Sachs Access Emerging Markets USD Bond ETF GEMD - Passive, fixed income, emerging markets
1/27/2022 - iShares MSCI China Multisector Tech ETF TCHI - Passive, China, technology
1/11/2022 - Simplify Emerging Markets PLUS Downside Convexity ETF EMGD - Active, equity, options strategy
1/11/2022 - SPDR Bloomberg SASB Emerging Markets ESG Select ETF REMG - Passive, equity, ESG
EM ETF Closures/Liquidations
Frontier and emerging market highlights:
12/28/2022 - Franklin FTSE Russia ETF - FLRU
12/22/2022 - VictoryShares Emerging Market High Div Volatility Wtd ETF CEY
8/22/2022 - iShares MSCI Argentina and Global Exposure ETF AGT
8/22/2022 - iShares MSCI Colombia ETFI COL
6/10/2022 - Infusive Compounding Global Equities ETF JOYY
5/3/2022 - ProShares Short Term USD Emerging Markets Bond ETF EMSH
4/7/2022 - DeltaShares S&P EM 100 & Managed Risk ETF DMRE
3/11/2022 - Direxion Daily Russia Bull 2X Shares RUSL
1/27/2022 - Legg Mason Global Infrastructure ETF INFR
1/14/2022 - Direxion Daily Latin America Bull 2X Shares LBJ
Check out our emerging market ETF lists, ADR lists (updated) and closed-end fund (updated) lists (also see our site map + list update status as some ETF lists are still being updated as of Summer 2022).
I have changed the front page of www.emergingmarketskeptic.com to mainly consist of links to other emerging market newspapers, investment firms, newsletters, blogs, podcasts and other helpful emerging market investing resources. The top menu includes links to other resources as well as a link to a general EM investing tips / advice feed e.g. links to specific and useful articles for EM investors.
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