Emerging Market Links + The Week Ahead (July 3, 2023)
China's balance sheet recession, Japanification & hidden govt debt. SE Asia braces for disruptive El Niño droughts, CLSA cites 5 India market concerns and the week ahead for emerging markets.
"Balance-sheet recession" guru Richard Koo is warning that a painful balance sheet recession and Japanification is coming to China while local governments are getting desperate for revenue. In fact, an audit has found that local governments have inflated revenue through "self-selling-and-buying" of state-owned assets and fictitious land transactions and through "excessive" taxes and fines.
Southeast Asia is also bracing for El Niño droughts and everyone will feel the impact to some degree as it means less water for hydropower/manufacturing (impacting industry and exporters in Vietnam, Thailand etc) along with the production of key commodities like coffee, palm oil, rice, sugar, etc. It also means by September (and like clockwork), those of us living in Malaysia and Singapore will be choking from the haze of out of control peat and rice paddy fires in Sumatra...
I should add that California had heavy rain plus cool winter and spring weather - severely impacting the almond crop for some farmers (primarily those who grow non-Pareils as they require bees for pollination). I can’t comment on the situation for other crops in California or on that side of the Pacific. Given the weather and the war in Ukraine, we should assume food inflation is not going away any time soon.
Emerging Market Stock Pick Tear Sheets
$ = behind a paywall
Emerging Market Stock Pick Tear Sheets (June 19-30, 2023)
Grand Parade Investments, Sun International, Southern Sun, Tsogo Sun, Kangwon Land, Champ Resto, AmRest, Devyani International, Sapphire Foods, Jubilant FoodWorks + moneycontrol India Stock of the Day
Kangwon Land (KRX: 035250): Shares Are Still Down Despite a Mass Gaming Revenue Recovery $
Champ Resto (IDX: ENAK): Indonesia's Restaurant National Champion? $
Emerging Market Stock Picks / Stock Research
$ = behind a paywall
Meilan Airport (357 HK): Positive on The Only China Airport Trading Below Book Value (Smart Karma) $
Meilan Airport (HKG: 0357) + Wikipedia Page as their name has changed.
A slew of bad news from weak China consumption, depreciating RMB to negative progress in an arbitration sent Meilan Airport stock down to below book value.
Yet when it comes to the fundamental of the company itself, we believe concerns are over-blown and very much priced in.
Meilan Airport is the most under-valued major airport in China airport space in our view. Patience will pay off.
The next two summaries are interesting and the spreads might be worth further investigation:
Delta Taiwan Vs. Thailand Monitor: Thailand Mismatch Correcting & This Could Pull Down Delta Taiwan (Smart Karma) $
We have an Underperform rating for Delta Electronics Taiwan (TPE: 2308) as a single stock trade due to our concerns that its valuation has been inflated by Delta Electronics Thailand (BKK: DELTA).
The extreme valuation mismatch between Delta Thailand and Delta Taiwan has corrected to some degree (Delta Thai crashed 23%) but still has a long way to go.
Delta Thailand should be removed from the SET50 Index in our view, the stock could be at risk of just such an action by year end according to precedent.
Taiwan Dual-Listings: TSMC Premium Drops But Still 8.8%; ASE Premium High & Looks Stretched (Smart Karma) $
Taiwan Semiconductor Manufacturing (TSMC) (TPE: 2330 / NYSE: TSM)'s ADR premium dropped to 8.8% but still historically high. The company has said it will send more Taiwan staff to get its U.S. production up and running.
ASE Technology Holding (TPE: 3711 / NYSE: ASX)'s ADR premium is high even for this usually-high premium range. ASE ADRs may be slightly behind the curve of the local shares' recent decline, hence the spread opened up.
Chunghwa Telecom (TPE: 2412 / NYSE: CHT) is at a relatively high ADR premium for this tightly trading range.
Himax Technologies: Contrarian Play on a Automotive Display Semiconductor Leader (Smart Karma) $
We spoke with management of Himax Technologies (NASDAQ: HIMX), the global leader in chips powering displays inside automotives including EVs. Its sales have been badly impacted by China's EV price war.
Himax sales have fallen recently largely due to China demand weakness; 70% of the company's sales are in China.
Himax has underperformed peer Novatek Microelectronics (TPE: 3034) as well as the TWSE both YTD and on a 1-year basis. We believe the less-followed stock could represent an opportunity for investors.
4 Attractive Singapore Blue-Chip Stocks That Can Grow Your Investment Portfolio (The Smart Investor)
If you are a seeker of stability combined with growth, then you may be interested in these four Singapore blue-chip names.
United Overseas Bank (SGX: U11 / FRA: UOB / UOB0 / OTCMKTS: UOVEY / UOVEF), or UOB, is Singapore’s third-largest bank by market capitalisation. [See: United Overseas Bank (SGX: U11 / FRA: UOB / UOB0 / OTCMKTS: UOVEY / UOVEF): Betting on ASEAN Growth With 2M New Citibank Clients]
Genting Singapore (SGX: G13 / FRA: 36T / OTCMKTS: GIGNF / GIGNY) is the owner and operator of the integrated resort (IR) at Resorts World Sentosa (RWS). The IR boasts six hotels with around 1,600 hotel rooms, a casino, a Universal Studios theme park, and an array of dining, retail, and entertainment outlets.
Singapore Technologies Engineering Ltd (SGX: S63 / FRA: SJX / OTCMKTS: SGGKF), or STE, is a technology, defence and engineering group serving customers in more than 100 countries in the aerospace, smart city, and public security sectors. The group is going strong as it continues to snag contracts and build up its order book.
Hongkong Land Holdings (SGX: H78 / LON: HKLJ / FRA: HLH / OTCMKTS: HKHGF / HNGKY), or HKL, is a property development, management and investment group that owns and manages more than 850,000 square metres of prime office and luxury retail assets in Singapore, Hong Kong, Jakarta, and China.
PLDT's Future Depends On SIM Cards (Seeking Alpha)
PLDT (NYSE: PHI) is the oldest and largest telecommunications company in the Philippines and has seen a decline in price by >25% in the past year. This has increased the dividend yield to nearly 9%.
The upcoming SIM registration deadline in the Philippines could potentially impact PLDT's revenue, with an estimated 18-20% of users possibly not registering could result in a drop in revenue.
Inflationary pressures are another concern for PLDT, as average revenue per user (ARPU) has decreased across all lines from Q4 2022 to Q1 2023.
A favorable resolution to the SIM registration impact and inflation impact, at or below the current share price, would flip me from hold to buy.
Sierra Rutile (SRX) (Overlooked and Undervalued)
Mostly upside......but who wants to own a mine in Sierra Leone?
In July 2022, Sierra Rutile (ASX: SRX / OTCMKTS: SRRHF) was listed on the Australian Stock Exchange. This new company wasn’t created in the usual way, by an Initial Public Offering (IPO), but instead was demerged (or spun-off) from a much larger public company, called Iluka Resources (ASX: ILU / FRA: ILZ / OTCMKTS: ILKAY / ILKAF). The specifics of the spin-off meant that all shareholders in Iluka Resources received shares in this tiny micro-cap company.
Sierra Rutile has a 60 year history operating a mine within Sierra Leone. Called Area 1, this mine produces around a third of the worlds supply of Natural Rutile. It is cash generative, has no debt, mature infrastructure, and access to its own dedicated port facility. But it is close to the end of its useful life with 3-4 years remaining at current production rates.
Sierra Rutile plans to replace Area 1 with another mine called Semberhun, located just 30km away. Semberhun is an early stage and speculative exploration project. The Pre Feasibility Study (PFS) estimates a pre-production cost of over $300mm - more than five times the current market capitalisation of the company!
Espaço Laser - LATAM Stocks Investment Analysis #17 (LATAM Stocks)
This edition will cover Espaço Laser (BVMF: ESPA3F), the largest laser hair removal company in Latin America. They have 764 stores in Brazil and are also present in Colombia, Argentina, Chile, and Paraguay.
Espaço Laser stock is one of the risker companies I have covered in this newsletter. The company is in a perilous financial situation. They have a huge debt cliff in 2024 and 2025 and I believe they will not be able to repay this debt from existing cash flows. Meaning dilution and/or bankruptcy are real possibilities.
That being said, there is a real turnaround effort underway. If management can resolve the company’s debt problem, Espaco Laser’s equity investors would be left with a solid operating business that is well positioned as the clear market leader in Latam’s cosmetic hair removal market.
Further Suggested Reading
$ = behind a paywall
China Begins Nationwide Push to Reveal Hidden Government Debt (BNN Bloomberg)
"Balance-Sheet Recession" Guru Warns Japanification Is Coming To China (Zerohedge)
Entire thread (from Thread Reader):
Top 500 Companies and Foreigners Have All Left, Shanghai’s Rents Have Plummeted! (YouTube) 14:32 Minutes
Note: From the China Observer which is clearly an anti-China YouTube Channel. Also see this quick fund manager trip report to Shanghai with pictures: Shanghai 2023 (Longriver)
On June 5th, a real estate industry insider in Shanghai appeared on Fuxing Middle Road, pointing to the deserted buildings on both sides of the street, "This place used to be packed with foreigners. Now, there's not a single foreigner around, only Chinese. All the foreigners have left." Following this, he brought up the rent situation in Shanghai. He said that in places like Mingyuan Century City, Jiali Garden, Huijing Garden, and Wutong Garden, the rent was usually tens of thousands per month, and the tenants were all foreigners. "These are the world's top 500 multinational companies. They're rich and spend company money. Now they're gone, and these houses are empty."
China will not be able to De-Dollarize under Xi Jinping (the market)
George Magnus, the former chief economist of UBS Investment Bank and author of the book «Red Flags», explains the disappointing economic recovery in China and says why the talk of de-dollarization remains wishful thinking.
South-east Asia braced for fires and drought brought on by El Niño (FT) (Archived Article)
Note: Hydropower/water (for industry in Vietnam, Thailand etc), coffee, palm oil, rice, sugar, etc is discussed in the article.
From Indonesia to Vietnam, the weather pattern is set to hit critical crops as well as industrial sector.
CLSA still underweight on Indian market, cites these five key concerns (mint)
CLSA believes Indian equities are trading on an 80% premium sector-adjusted 12-month forward consensus earnings multiple and 2.6x cyclically adjusted earnings relative to emerging markets (EM).
Unappealing valuations
Margin erosion
EPS growth remains too optimistic versus delivered
Policy easing
Indian market is 14% overbought
Greying and Greening Across Emerging Markets (PGIM Fixed Income)
The demographic story of the past few decades has been one of “greying” across developed market (DM) countries as increasing longevity and declining fertility lead to societal aging. However, far less attention has been paid to the looming demographic transition across emerging market (EM) countries, where populations are also set to begin aging rapidly. While “greying” reflects positive developments in human progress (i.e., people living longer and healthier lives), it also presents new policy challenges as smaller labor forces will be forced to support larger dependent populations. With the share of the EM population aged 65 and over expected to soar over the next two decades, we examine which EMs face the strongest demographic pressure as part of our ongoing research into the global shift in labor dynamics.
Greying versus Greening (% 2050 Working Age Population)
Source: PGIM Fixed Income, UN as of May 2023.
Earnings Calendar
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):
Economic Calendar
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).
Election Calendar
Frontier and emerging market highlights (from IFES’s Election Guide calendar):
Uzbekistan Uzbekistani Presidency Jul 9, 2023 (t) Confirmed Dec 31, 2021
Cambodia Cambodian National Assembly Jul 23, 2023 (d) Confirmed Jul 29, 2018
Argentina Argentinian Presidency Aug 13, 2023 (d) Confirmed Oct 22, 2023
Ecuador Ecuadorian Presidency Aug 20, 2023 (t) Confirmed Apr 11, 2021
Ecuador Ecuadorian National Congress Aug 20, 2023 (t) Confirmed Feb 7, 2021
Zimbabwe Zimbabwean National Assembly Aug 23, 2023 (d) Confirmed Jul 30, 2018
Zimbabwe Zimbabwean Presidency Aug 23, 2023 (d) Confirmed Jul 30, 2018
Singapore Singaporean Presidency Sep 13, 2023 Date not confirmed Sep 23, 2017
Slovakia Slovakian National Council Sep 30, 2023 (t) Confirmed Feb 29, 2020
Pakistan Pakistani National Assembly Oct 14, 2023 (t) Date not confirmed Jul 25, 2018
Argentina Argentinian Chamber of Deputies Oct 22, 2023 (d) Confirmed Oct 24, 2021
Argentina Argentinian Senate Oct 22, 2023 (d) Confirmed Nov 14, 2021
Argentina Argentinian Presidency Oct 22, 2023 (d) Confirmed Aug 13, 2023
Ukraine Ukrainian Supreme Council Oct 29, 2023 (d) Confirmed Jul 21, 2019
Poland Polish Sejm Oct 31, 2023 (t) Date not confirmed Oct 13, 2019
Poland Polish Senate Oct 31, 2023 (t) Date not confirmed Oct 13, 2019
Chile Referendum Dec 17, 2023 (t) Confirmed Sep 4, 2022
Emerging Market IPO Calendar/Pipeline
Frontier and emerging market highlights from IPOScoop.com and Investing.com (NOTE: For the latter, you need to go to Filter and “Select All” countries to see IPOs on non-USA exchanges):
Chi Ko Holdings Limited CKHL, 1.7M Shares, $4.00-5.00, $7.8 mil, 7/3/2023 Week of
We are a holding company incorporated in the Cayman Islands with operations conducted by our Hong Kong subsidiary, Chiu & Lee Partners. (Incorporated in the Cayman Islands)
We are a one-stop shop construction service provider and established construction contractor in Hong Kong with over 40 years of experience in the construction industry, principally providing (i) foundation and site formation work, which mainly includes piling work, excavation and lateral support work and pile cap construction, (ii) general building work and associated services, which mainly includes development of superstructures, alteration and addition work; and (iii) other construction work, which mainly includes demolition work. We are able to undertake construction work as either a main contractor or a subcontractor.
We are a company principally engaged in construction work in Hong Kong. We have obtained the relevant registration for our business operations via our key Operating Subsidiary, Chiu & Lee Partners, as a general building contractor from the Buildings Department of Hong Kong since 1999 and as a specialist contractor in the demolition work category, foundation work category and site formation work category from the Buildings Department of Hong Kong since 2006.
**Note: Revenue and net income figures are in U.S. dollars for the 12 months that ended Sept. 30, 2022.
(Note: Chi Ko Holdings Limited set terms for its IPO in an F-1/A filing dated May 30, 2023: 1.74 million shares at $4.00 to $5.00 to raise $7.83 million. Chi Ko Holdings Limited filed its F-1 on March 16, 2023, without disclosing terms for its IPO. The shares in the IPO will be offered by the Cayman Islands holding company and not by the underlying business in Hong Kong.)
Emerging Market 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:
03/16/2023 - JPMorgan Active China ETF JCHI - Active, equity, China
03/03/2023 - First Trust Bloomberg Emerging Market Democracies ETF EMDM - Principles-based
1/31/2023 - Strive Emerging Markets Ex-China ETF STX - Passive, equity, emerging markets
1/20/2023 - Putnam PanAgora ESG Emerging Markets Equity ETF PPEM - Active, equity, ESG, emerging markets
1/12/2023 - KraneShares China Internet and Covered Call Strategy ETF KLIP - Active, equity, China, options overlay, thematic
1/11/2023 - Matthews Emerging Markets ex China Active ETF MEMX - Active, equity, emerging markets
12/13/2022 - GraniteShares 1.75x Long BABA Daily ETF BABX - Active, equity, leveraged, single stock
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
Emerging Market ETF Closures/Liquidations
Frontier and emerging market highlights:
06/23/2023 - Invesco PureBeta FTSE Emerging Markets ETF - PBEE
3/30/2023 - Invesco BLDRS Emerging Markets 50 ADR Index Fund - ADRE
3/30/2023 - Invesco BulletShares 2023 USD Emerging Markets Debt ETF - BSCE
3/30/2023 - Invesco BulletShares 2024 USD Emerging Markets Debt ETF - BSDE
3/30/2023 - Invesco RAFI Strategic Emerging Markets ETF - ISEM
2/17/2023 - Direxion Daily CSI 300 China A Share Bear 1X Shares - CHAD
1/13/2023 - First Trust Chindia ETF - FNI
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 (June 3, 2023) was also published on our website under the Newsletter category.
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