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Emerging Market Links + The Week Ahead (February 6, 2023)
CLSA Feng Shui Index 2023, wealthy PRC Chinese flock to Singapore, tech investors favor India over USA-China, nearshoring to Mexico, Meituan report and the week ahead for emerging markets.
2023 Chinese New Year festivities ended yesterday with the 15th day or Chap Goh Meh as wealthy PRC citizens continue to move themselves and their wealth to Singapore (“At least when I’m here, I know my money is mine…”) where they set up “family offices” to manage it. This also comes as US tech investors continue to drop China and the USA for India while Beijing struggles to “halt China's housing avalanche.”
Meanwhile, the Mexican government says more than 400 companies currently have shown interest in moving production from Asia to Mexico where demand for industrial space is picking up. This comes in spite of Mexico’s President unnerving some investors with his energy policies.
Finally, some interesting charts and EM research reports have dropped plus some ideas on how to profit from "Peak Climate Change Hysteria" in the West (e.g. EMs and Glencore).
$ = behind a paywall
Sector predictions are here.
In our view, the factors most likely to affect China’s growth trajectory in the longer term are:
The repercussions of past economic excesses
A different ideological approach to development
An economic, structural transformation to address these two problems.
NOTE: Includes several good charts and tables + see The Chinese Property Market: The Most Important Industry Globally Which Few Understand (Platinum Asset Management) from last week.
The construction boom, in turn, was the main driver of China’s massively unbalanced, investment-heavy, consumption-poor growth. Though, in recent years, the investment share has stabilized and consumption has begun to increase, the imbalance remains huge.
Beijing’s crackdowns on tech billionaires and tax-shy celebrities, plus three years of zero-Covid, have led many affluent Chinese to relocate to the city state
Some are shelling out US$800,000 for a bottle of whisky, US$61,000 for cigars and US$670,000 a year for membership to the exclusive Sentosa Golf Club
Jack Ma, one of the most recognisable faces in Asian business, lost an estimated US$25 billion when Chinese regulators pulled the plug on a blockbuster IPO in 2020.
Other Chinese tycoons fear the Communist Party could apply similar pressure or even take over their businesses at low prices, an accountant familiar with the situation said.
Singapore is increasingly viewed as a home rather than just a backup plan, another source in the industry said, adding that clients had told him: “At least when I’m here, I know my money is mine.”
Case study series – Meituan: Finding business clarity (Momentum.Asia)
Meituan is one of the top 2nd generation giants (alongside ByteDance and Pinduoduo) in China today. It has evolved their business models multiple times, navigating a cut throat business environment and managing complicated terrains.
PE deals in Asia-Pacific fall in 2022 as US investors drop China for India (Business Standard)
"There is a lot of excitement about India right now in terms of the scale of the market," Ambrose said.
Investors see technology companies in India and Southeast Asia, in particular, as more valuable picks compared to counterparts in the US or China, [Cate] Ambrose [chief executive officer of the Global Private Capital Association, in an interview with Market Intelligence] added.
The Mexican government says more than 400 companies currently have shown interest in moving production from Asia to Mexico.
The enthusiasm comes even as President Andrés Manuel López Obrador has unnerved some foreign investors with his efforts to reclaim control of electricity generation in Mexico. The policies affect large industrial electricity consumers and have sparked trade disputes with the U.S., halted large electricity projects and kept billions of dollars in potential investments on hold.
As demand for industrial space picks up, insufficient electricity infrastructure is limiting the speed at which manufacturers can move into Mexico, said Alberto Villarreal, managing director of Chicago-based Nepanoa, which does project management and consulting for U.S. companies setting up or expanding in Mexico.
“Mexico has an obstacle when it comes to utilities,” he said.
Chihuahua, Mexico-based real-estate trust Fibra Nova, which develops and leases commercial property, plans to build a 239,400-square-foot plant in Ciudad Juárez for ZF Electronic Systems, a unit of Germany’s ZF Group, which supplies systems for vehicles and industrial technology, Fibra Nova said in a public filing with the Mexican Stock Exchange.
EMs with stronger fundamentals should see inflows (Capital Group)
Global ownership of EM bonds stands at its lowest point in close to a decade
Real policy rates are generally higher in Latin American countries such as Brazil and Mexico as they have hiked interest rates early, helping to contain inflation. Latin American inflation now seems close to its peak, helped not only by the lagged impact of monetary tightening, but also softer energy inflation, along with weak growth. Asian inflation, however, continues to pick up, albeit slowly, on the back of delayed market reopening combined with removal of fuel subsidies in certain economies. The picture is more mixed in the Central and Eastern Europe, Middle East and Africa (CEEMEA) region with inflation likely to have peaked in some countries, such as South Africa (although core inflation has recently started to reaccelerate) but remaining high in Eastern Europe.
Visualizing Global 2023 GDP Growth Forecasts By Country (Visual Capitalist)
NOTE: The full report (PDF Format) discusses each country.
Market Strategy: Relative to the previous quarter, global growth headwinds remain. But an earlier-than-expected China reopening should result in a more desynchronized cycle by mid-year. An obvious beneficiary has been the MSCI China index. Yet, valuations have already partially re-rated, and we continue to see longer-term structural growth drags preventing a more sustained recovery. Instead, we prefer to maintain our preference for other attractively valued EM Asian economies. In addition, we make the following three adjustments to the existing country allocations:
We upgrade Saudi Arabia to overweight. Valuations have cheapened with the moderation in oil prices. We view this weakness as an attractive opportunity to build longer-term exposure.
We upgrade Taiwan to overweight. The global semiconductor down cycle will continue to weigh on Taiwan and South Korea. However, Taiwanese valuations have cheapened to attractive levels on a forward P/E basis. A further de-escala- tion of geopolitical tensions would also be supportive.
We downgrade South Africa to underweight. President Ramaphosa’s recent controversy is a distraction that reduces the likelihood of necessary structural reforms this year. Valuations have room to de-rate further.
3 ideas to profit from "Peak Climate Change Hysteria" (Undervalued Shares)
Idea #1: Bet on cracks in the narrative
Idea #2: Profit from new inventions
Idea #3: Put emerging markets on your radar
My current favourite is my bet that Saudi Arabia will soon see a boost in foreign investment and soaring stock prices.
Saudi Arabia is one of the world's most underestimated countries. I visited the reclusive kingdom extensively in 2018 (worming my way in at a time when they didn't have a tourist visa yet), and I have been following it closely ever since. I expect Saudi Arabia to be on the cusp of both a cultural revolution and an investment boom.
It helps that the country still sits atop one of the world's biggest oil reserves, which also happens to be one of the cheapest to produce. The Saudis are also about to ramp up their mineral exploration, which is virtually untapped and potentially another "last great frontier".
Saudi Arabia isn't going to stop producing oil because a few teenagers glue themselves to a street in Berlin or throw soup at paintings in London. In fact, during my travels to different parts of the world, I have long noticed that some of the recent societal trends seen in Europe and North America cause nothing but hearty belly laughs elsewhere in the world. In Asia and the Middle East, many realise that many of the West's misguided policies benefit their economies.
London-listed Glencore is a commodities company that:
Produces fossil fuels.
Produces commodities needed for "green" energy.
Navigates emerging markets to find the best deals.
I prefer investments in companies where management makes decisions based on reality instead of ideology. As such, Glencore is an outstanding company to look at. It is much maligned, because its management speaks truth to power and acts accordingly.
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):
We are a leading financial and taxation service provider in China in terms of revenue, according to the industry report of Frost & Sullivan. (Incorporated in the Cayman Islands)
We have operated as a dedicated financial and taxation solution service specialist in China for over 17 years. We focus on providing (i) financial and taxation solution services; (ii) education support services; and (iii) software and maintenance services in the People’s Republic of China (PRC) under the “Lichen” brand. With over 17 years of operation history, we have gained substantial experience and established a solid reputation with our proven track record in the PRC.
We launched a new business line of software and maintenance services in 2019 to expand our software product offerings to enterprise customers, universities, colleges and educational institutes and have started to generate revenue from provision of such services since then.
From 2012 to 2020, we have been recognized as one of the Top 50 Providers of Management Consulting Services in China for eight consecutive years by the China Enterprise Confederation Management Advisory Committee.
Note: Revenue and net income are in U.S. dollars for the year ended Dec. 31, 2021.
(Note: Lichen China filed an F-1/A dated Jan. 12, 2023, in which it cut the size of its IPO to 4.5 million Class A ordinary shares – down from 6.25 million ordinary shares – and kept the assumed IPO price at $4.00 to raise $18 million. That represents a 28 percent cut in the deal’s size. Background: Lichen China’s IPO was delayed last September; the pricing had been expected during the week of Sept. 19, 2022, for a trade date likely on Friday, Sept. 23, or Monday, Sept. 26, 2022.)
(Note: Hesai Group is a holding company incorporated in the Cayman Islands. Hesai Group is offering the American Depositary Shares (ADS) in this IPO – and not the underlying business and its subsidiaries operating in mainland China. Each ADS will represent an undetermined number (at the present date of Jan. 17, 2023) of Class B shares of the holding company.)
Hesai Technology is the global leader in three-dimensional light detection and ranging (LiDAR) solutions. Its LiDAR products enable a broad spectrum of applications across (i) passenger or commercial vehicles with advanced driver assistance systems, or ADAS, (ii) autonomous vehicle fleets providing passenger and freight mobility services, or Autonomous Mobility, and (iii) other applications such as last-mile delivery robots, street sweeping robots, and logistics robots in restricted areas, or Robotics.
We believe that Hesai Technology is the most commercially successful LiDAR company globally.
Its shipment volume, revenue scale and margins validate its global leadership. It has shipped over 103,000 LiDAR units from 2017 to December 31, 2022, and it has shipped over 80,400 LiDAR units in aggregate in 2022. In particular, it has shipped approximately 62,000 LiDAR units for ADAS customers in aggregate in 2022, which demonstrates the highest estimated shipment volume of LiDAR units (excluding low-end LiDARs with 16 channels or less) for ADAS customers in 2022, according to the Frost & Sullivan Report. It generated the highest revenue as compared with listed LiDAR companies around the world for the nine months ended September 30, 2022, outperforming the second place by over 3.6 times, according to the Frost & Sullivan Report. Its industry-leading gross margin of approximately 50% from 2020 onwards enables it to organically and rapidly grow its business.
It is one of the few companies that have shipped LiDAR products in volume to automotive OEMs in the ADAS market and the first company in the world that delivers over 10,000 LiDAR units per month, according to the Frost & Sullivan Report. According to the Yole Intelligence Report that sampled 54 ADAS customers, it is No.1 in terms of LiDAR design wins. It paved the way for LiDARs from technology innovation to mass production and wide application, driven by the evolution for more intelligent vehicles. After volume shipment began in July 2022, it shipped approximately 60,000 LiDAR units in the six months ended December 31, 2022 to the ADAS market, which was groundbreaking in the industry. Its top ADAS customers, in terms of expected shipment volume as of September 30, 2022, include Li Auto, Jidu, Lotus, an electric vehicle manufacturer headquartered in China and a leading consumer electronics manufacturer in China that has leaped into the electric vehicles industry.
It is also the global leader for LiDARs in the Autonomous Mobility market in 2021 in terms of revenue, having an approximately 60% share of the global market, according to the Frost & Sullivan Report. As of December 31, 2021, 12 out of the 15 top global autonomous driving companies used its LiDARs as their primary LiDAR solution, meaning that Hesai Technology had the largest share by purchase dollar amount for the current fleet of each of the 12 companies, according to the Frost & Sullivan Report. These top 15 companies are defined in terms of testing miles traveled as reported by the California Department of Motor Vehicles in 2021.
*Note: Revenue and net loss figures are in U.S. dollars for the year ended Dec. 31, 2021.
(Note: Hesai Group disclosed terms for its IPO – 9.0 million American Depositary Shares (ADS) at $17.00 to $19.00 to raise $162.0 million – in an F-1/A filing dated Feb. 2, 2023. Each ADS represents one Class B ordinary shares. Hesai Group filed its F-1 dated Jan. 17, 2023. The company submitted its confidential IPO documents to the SEC on July 2, 2021.)
(Note: Elephant Oil Corp. filed an S-1/A on Dec. 6, 2022, to cut the size of its unit IPO – to 1.83 million units (1,827,957 units) from 2.58 million units (2,580,645 units) – and kept the price range at $4.15 to $5.15 – to raise $8.5 million. In terms of estimated IPO proceeds, the new terms represent a cut of 29.2 percent. Each unit consists of one share of common stock and one warrant to buy one share of stock. **Note: The company updated its IPO plans with a placeholder filing dated Jan. 6, 2023. Background: The IPO’s initial terms were 3.23 million units at $4.15 to $5.15, disclosed in an S-1/A filing on Aug. 12, 2022. The S-1 was filed March 25, 2022. Confidential IPO documents were filed on Dec. 21, 2021.)
We are an independent oil and gas exploration stage company, led by an experienced management and technical team, which is focused on under-explored regions in Africa. Our current asset portfolio includes an exploration license onshore in the Republic of Benin (“Benin”), as well as an exploration license onshore in the Republic of Namibia (“Namibia”). As of the date of this prospectus, we have not drilled any wells. Additionally, the Company continues to review other potential assets for expansion.
**Note: Revenue and net loss figures are for the year that ended June 30, 2022.
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.
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.
Emerging Market Links + The Week Ahead (February 6, 2023) was also published on our website under the Newsletter category.