Emerging Market Links + The Week Ahead (May 22, 2023)
China's Gen Z is "flat broke," China’s top 15 EV companies, Sea + Grab earnings, South Africa is "running out of time," positioning for a “slow” slowdown and the week ahead for emerging markets.
For this week, we have a number of new Tear Sheets plus stock picks from other sources. And while I am not a fan of Insider due to Henry Blodget being it’s CEO, they recently had an interesting article about Chinese Gen Z complaining and posting about being broke on Wiebo. We also have a list of China’s top 15 electric vehicle companies and a research article about the Chinese challenge to the European automotive industry.
Meanwhile, if you want to know what a “state collapse” looks like (and what the near future might hold for places like California and many American cities experiencing similar problems), a South African Financial Mail journalist has detailed how South Africa has experienced structural decline, deindustrialization, and economic growth collapse since 2009 (or roughly the last 15 years). She says the role of the South African state will dwindle until its little more than a tax and transfer agency supporting social grants.
The good news? The private sector and civil society is well positioned to take up the slack and are already doing so (e.g. by going off the grid, taking up government roles like fixing potholes, etc) plus many South African companies have expanded their operations abroad (e.g. see our South African stock tear sheets for some South African stock ideas - all of whom have successfully expanded abroad). Likewise, Western Cape province and other local jurisdictions still have functioning governments.
All the South African professionals I have met in Asia have been very professional while South African businesses (even the few here in Asia) seem well managed with management teams focused on what matters for the business. In South Africa, that means keeping the electricity on and NOT getting involved in extraneous political or cultural issues/controversies that many American companies/brands (e.g. Bud Light, Disney, etc.) have managed to deeply mire themselves in.
Finally, its also worth remembering that Carlos Salim’s (the richest man in Mexico) fortune was helped in part by his father buying up valuable commercial properties in Mexico City during the Mexican Revolution - when there were no other buyers around...
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Emerging Market Stock Picks / Stock Research
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China’s top 15 electric vehicle companies (The China Project)
The future of road transport is being forged in China. These are its leading electric vehicle companies that are ready to take on the world.
We estimate China sales will continue to remain resilient as cross-border travel is yet to pick up in a big way.
Trading at 7.5x FY23e and a 14.2% dividend yield, with more than 50% of the market capitalization in cash, the company can pay solid future dividends despite weaker earnings.
Can Vingroup Upgrade Vietnam’s Auto Industry? (Asianometry Substack)
Also see: The VinFast VF8 Is Simply Not Ready for America (Jalopnik)
I think it makes sense to release this one considering the recent news that Vinfast, the Vingroup EV subsidiary is doing a huge SPAC deal to give it an enterprise value of $27 billion.
I was quite charitable in the video, but I think that the company faces difficult odds when it comes to the global EV industry. Vingroup is a real estate developer. Critical success factors for real estate development is how close you are with the local government. How well does that translate to being a product-oriented electronics company? They need a hit and need it fast.
Sea: Another step on the profitability pathway (The Wolf of Harcourt Street)
E-commerce and Digital Financial Services continue to remain extremely resilient. Operating margins for both have improved enormously, swinging negative to positive while revenue continues to grow at above average rates.
Digital Entertainment is a real worry. Management have tried to draw attention to the fact that QAUs have increased 1% QoQ but what really matters is that QPUs continue to fall QoQ which has resulted in revenue and crucially margins declining further. Not so long ago this segment was referred to as a cash cow but while still profitable has turned into the problem child in my eyes. Management have referenced actions to optimise Garena and I expect to see some sort of results next quarter.
However, both stocks dropped significantly during the 1st full trading day after the release (14.66% and 14.75% respectively) - for different reasons. Investors are concerned about the continuous slump of Garena - Sea’s gaming and entertainment business; the concern about Grab is more about the slight drop in GMV of its deliveries segment.
Both companies have made some changes to how they report their financials:
Sea Group stopped reporting the GMV of its ecommerce platform Shopee
Grab stopped reporting the commission rates it charges the ecosystem
ANTAM is a state-owned gold and nickel miner in Indonesia, which has the largest nickel deposits in the world. The Company has the largest nickel reserves among its local peers.
ANTAM listed on the Indonesian Stock Exchange (IDX) in 1997, selling 35% of its shares in the process. It also listed its shares on the Australian Stock Exchange (ASX) as a foreign exempt entity in 1999 before abiding it status by the more stringent ASX listing in 2002. The business was initially involved in other minerals including bauxite, coal, mineral sands, but over the past five years the company has largely cleaned up its unprofitable businesses and now mainly focuses on nickel and gold mining.
An Indian MNC primarily engaged in the manufacture of a wide range of generic drugs. It also produces the generics for hepatitis C treatment.
US business growth was driven by volume expansion in existing products and new launches. The company has launched eight new products in the US during the quarter.
Going ahead, growth is expected to moderate, due to high base effect. The company expects single-digit growth in the US business in FY24, slower than 28% growth recorded in FY23.
“The review concluded that the most appropriate corporate structure for AngloGold Ashanti (NYSE: AU) group is a UK corporate domicile with a US primary listing on the New York Stock Exchange and secondary listings on the JSE and A2X Markets in South Africa and the Ghana Stock Exchange in Ghana," it said.
“The company has a long-standing and growing presence in the US and no longer has operating assets in South Africa…”
“On June 27, ANG (AngloGold) will also delist from the Australian stock exchange. A primary listing in the US may improve access to capital pools and the liquidity of shares. As a result of a US primary listing, ANG expects higher stock performance and a higher share value than its more liquid, higher-valued North American peers. ANG’s move is estimated to cost around 5% of its market capitalisation, primarily to cover tax obligations in South Africa,” he [Anchor Capital investment analyst Stephan Erasmus] said.
Further Suggested Reading
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The shift to battery electric vehicles is a game changer for the European automotive industry. Alternative energy vehicle sales reached a record-breaking 4.4mn units in 2022, representing 47% of all new vehicle registrations in Europe…
But the number one risk is China. Having recognized the potential of electric vehicles 15 years ago, China has since invested vast resources in building a competitive electric vehicle ecosystem. As a result, it now leads the global EV landscape, selling over double the number of BEVs in 2022 compared to Europe and the US combined, while also holding a competitive edge in nearly all aspects of the BEV value chain…
European carmakers could collectively lose more than EUR7bn in annual net profit by 2030. If Chinese manufacturers increase their domestic market shares to 75% by 2030, total sales in China by European carmakers would fall by -39%, with local production falling from an estimated 4.4mn units to 2.7mn in 2030…
What can policymakers do?
I am not a fan of Insider due to Henry Blodget being it’s CEO, but this is interesting:
China's Gen Z is broke, and they have the receipts to prove it.
Hundreds of 26-year-olds took to social media to share screenshots of their bank accounts.
Some saved less than $1, others crossed the $1,000 mark. But something they all have in common is: They're angry.
Asia: A once-in-a-decade opportunity (Robeco)
The long-term opportunity to gain exposure to Asia-Pacific equities is currently being obscured by a resilient US dollar and geopolitical worries which ignore the region’s solid macroeconomic advantages.
Valuation gap with US still enormous and contrary to macro fundamentals with reopening occurring
Asia ex-China economies can benefit from China offshoring, and remain key US trade partners
Asia-Pacific investment universe offers unrivalled combination of diversity, value and growth potential
On stranger tides: Southeast Asia tech investment in 2023 (Momentum Works)
The following slide used in the sharing summarises the past decade of tech development and investment in the region:
Insurmountable challenges ahead for a new Thai government (Murray Hunter Substack)
Pita as PM far from a foregone conclusion
India’s macro fundamentals are well positioned for a multi-year improvement in economic output and earnings. Beyond the long-standing strength of its demographics, urbanisation and rising middle class, new factors are emerging that will accelerate investment opportunities in the country. Indian corporates have deleveraged and now sit on strong balance sheets, banks have strong capital adequacy ratios, and the government has plugged loopholes in the real estate sector. Future policy efforts should focus on green-field investments in newer sectors and industries and should propel the growth of corporate capital expenditure which has lagged in the past decade. The overall outlook for the next ten years is positive, but there are risks to be aware of, particularly regarding politics and policy, geopolitical developments and the evolution of commodity prices.
Macro Monthly: Positioning for a “slow” slowdown (UBS Asset Management)
How to invest for the possibility of a failed state (Daily Investor)
However, if such warnings are now raised in the trusted business journal Financial Mail, by award-winning journalist Claire Bisseker, maybe it is time to take note.
A cover page feature she wrote titled SA’s Doomsday Clock sent shockwaves through the investment community, and suddenly the topic was in sharp focus, begging the question – what are ordinary investors to do if that possibility is beginning to look like a certainty?
The Financial Mail article provided a detailed analysis of the underlying economic and financial trends in SA, especially the past 13 years of deterioration since especially 2010.
Former editor of Business Day and Financial Mail also raised the issue. In a recent column, Bruce said “it is going to get worse before it gets worse”.
Watch: Has SA run out of time on the doomsday clock? (Youtube) 8:07 Minutes
Transition point. Private sector and civil society are well positioned to take up the slack (e.g. neighbourhood associations are filling potholes in local neighbourhood).
Private sector increasingly taking over gov’t roles. But if you live in a remoter area or places without much of a private sector, things will get harder.
Few very tough and nail-biting years ahead…
Structural decline and economic growth collapse since 2009 or last 15 years. Even if you fix Eskom etc, de-industrialization trends won’t change. Where will the growth come from due to structural collapse? Low investment and low growth for a decade.
Basic social contract is collapsing. The role of the state will dwindle until its little more than a tax and transfer agency supporting social grants.
She thinks they can muddle through and avoid a catastrophic blow-up.
2024 elections and the coalitions that form may drive the future.
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):
Emerging Market IPO Calendar/Pipeline
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**Note: Net income and revenue figures are in U.S. dollars (converted from Hong Kong dollars) for the fiscal year that ended March 31, 2022.
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:
03/03/2023 - 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.
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Emerging Market Links + The Week Ahead (May 22, 2023) was also published on our website under the Newsletter category.