Emerging Market Links + The Week Ahead (May 8, 2023)
7 countries trading at attractive valuations, China-Taiwan contract risk clauses, India's conglomerate business model at risk, Africa's fastest growing companies & the week ahead for emerging markets.
China is now the elephant in the investing index room, but there is a risk of investors overlooking other countries with more attractive valuations (and for that matter, better earnings growth). Based on price-to-book ratios over the last 10 years, markets such as Indonesia, Malaysia, Philippines, Mexico, South Africa, Turkey and Chile are all trading at very attractive levels.
In India, a research report concludes that liberalization under Narendra Modi has put the conglomerate business model at higher risk (e.g. Adani, Reliance, etc), but superior access to capital markets, innovative funding solutions and connections to political centers of power will keep the tycoons relevant for some time.
Finally, a quick reminder that Turkish elections (first Presidential round) are this coming Sunday. Turkey seems to be to Europe what Mexico is to the USA e.g. an industrialized economy that’s a source for labor-cheap assembly for the latter that also comes with a large domestic market plus some natural resources. And there are good companies and stocks to be found in both Mexico and Turkey (where locals have invested or inflated the stock market to avoid inflation-currency devaluations) e.g. Anadolu Efes (IST: AEFES / FRA: EF41 / OTCMKTS: AEBZY): Bridging the East-West Divide With Beer & Soft Drinks.
Emerging Market Stock Pick Tear Sheets
Emerging Market Stock Picks / Stock Research
$ = behind a paywall
Deep-dive 2023-8: NagaCorp (3918 HK) (Asian Century Stocks)
NOTE: NagaCorp (HKG: 3918 / FRA: N9J / OTCMKTS: NGCRF) has come up a few times in our fund posts as a fund holding. They have suffered some recent ratings downgrades while waiting for the Chinese tourists to return.
Cambodian monopoly casino operator getting ready for a wave of Chinese tourists.
What makes NagaWorld unique is that it has a monopoly on running casinos in a 200km radius of Phnom Penh, lasting until 2045. And its casino license lasts until 2065. The regulatory environment has also been exceptionally favourable, with low gaming taxes of just 4-7% compared to up to 40% in Macau. Cambodia also offers visas on arrival to mainland Chinese visitors.
Alibaba Cloud: Faces Nationalization Threat, IPO Prospects Remain Dim (Smart Karma) $
Alibaba Group’s (NYSE: BABA) Cloud will cut prices for its elastic computing services using Arm and Intel-based chips by 15-20% and Nvidia's V100 and T4 graphics processing units by 41-47%.
It seems like the company is trying to combat increasing competition in the only way it knows how, by further subsidizing its already-subsidized cloud services.
Price may not be the main reason for companies to avoid using Alibaba Group (9988 HK)'s Cloud services. Government initiatives to nationalize the cloud-computing market could be a bigger factor.
China Tourism and Hospitality Industry: A Year of Revenge (Smart Karma) $
With re-opening of borders, China's tourism and hospitality industry should see encouraging earnings outlook over the next two years; and we are now only in the early stage of recovery.
Online travel agencies and hotel and resorts operators including Tongcheng Travel Holdings (HKG: 0780), H World Group (HKG: 1179 / NASDAQ: HTHT), Trip.com (HKG: 9961 / NASDAQ: TCOM) and Fosun Tourism (HKG: 1992) are well positioned.
These companies all have sound business model, industry leadership position, solid competitive strengths, comprehensive customer coverage and, for some, meaningful global presence in their respective sub-sectors.
Further Suggested Reading
$ = behind a paywall
Multinationals add China-Taiwan risk clauses to contracts as tensions rise (FT) and Commercial contracts add China-Taiwan risk clauses as tensions rise (Nikkei Asia)
Specific provisions covering a possible conflict in the Taiwan Strait — as well as business disruptions caused by tensions over Taiwan more broadly — have been included in agreements in recent months, lawyers have told Nikkei Asia.
In a clause of one contract seen by Nikkei Asia, neither party would be liable for failure to perform the terms of a supply agreement in the event of a “national or regional emergency or other geopolitical event(s) over the Taiwan Strait and/or the South China Sea which restricts freedom of navigation through these waters under customary international laws”.
China, population, and lies (American Thinker)
Note: This is an interesting anti-China piece. Apparently, there are incentives for local governments to inflate birth #s, etc: Researcher questions China's population data, says it may be lower (Reuters).
Recently, the Chinese government admitted that it had "overcounted" the Chinese population by about a hundred million.
Actually, nothing of the sort happened. Chinese announcements concerning anything are generally soaked in various mixtures of bogosity, and this one is no exception. A hundred million is not a rounding error. There was, in fact, no error at all. The Chinese simply lied about their population at some unknown point in the past and continued lying until it became inconvenient or impossible to sustain.
So, comrade, you're telling me that China started the 20th century with just under 400,000,000, suffered something on the order of 463,139,000 excess deaths (remember, we're not counting ordinary, everyday mortality here) across the ensuing 80 years, and still wound up with 1.4+ billion people?
I call 废话. I say it is mathematically and physically impossible.
I don't think China has 1.4 billion. I don't think it has a billion. In fact, I have some doubt that it ever reached a billion.
Asia op 2023 earnings to stay below 2019 level: Moody’s (GGR Asia)
Also see Macau 2023 mass GGR maybe 88pct of 2019 levels: MS and S.Korea 2022 casino revenue up 64pct to US$1.47bln:
The Singapore casino-market duopoly and Malaysia’s casino monopoly are respectively likely to recover to 90 percent of pre-pandemic gross gaming revenue (GGR) this year, up from 70 percent in 2022, but Macau will in 2023 only manage to reach at most 50 percent of 2019 GGR. That is the conclusion of a Wednesday research note issued by Moody’s Investors Service Inc.
“China’s reopening will boost Asia gaming revenue [in 2023], but not to a full recovery from the pandemic [impact],” said the memo. “We do not expect Asia gaming operators’… earnings to fully recover to pre-pandemic levels in 2023,” it added.
The team of Moody’s analysts stated that while GGR in Macau had surged since border restrictions were lifted in January, it expected full-year GGR only to rise to between 45 percent and 50 percent of 2019′s levels this year, and then 60 percent of pre-pandemic in 2024; compared to 14 percent of 2019 level last year.
Emerging Markets Insights: Emerging market earnings outlook (Franklin Templeton)
Commentary: Why an emerging markets ex-China strategy offers a new opportunity set (Eastspring Investments via Pensions & Investments)
Risk of overlooking countries with attractive valuations
South Africa was almost 15% of the MSCI Emerging Markets index in 2002. In 2015, the weight dropped to 6.8%. Today, its share has fallen to 3.2%. Similarly, other markets such as Mexico, Malaysia, Chile, etc., have experienced similar diminishing shares. What this means is that there is the risk of missing out on the attractive valuation opportunities these markets offer (see Figure 2) .
Based on price-to-book ratios over the last 10 years, markets such as Indonesia, Malaysia, Philippines, Mexico, South Africa, Turkey and Chile are trading at very attractive levels. At current valuations, these markets will likely offer plenty of investment options.
Making India a Global Growth Engine (MacKay Shields)
NOTE: The downloadable research report is much more detailed and worth reading.
Liberalization under Narendra Modi has put the conglomerate business model at higher risk, but superior access to capital markets, innovative funding solutions and connections to political centers of power will keep the tycoons relevant for some time.
FT ranking: Africa's Fastest Growing Companies 2023 (FT)
List of 100 shows that sectors from fintech to renewable energy to healthcare managed to develop their businesses while much of the world shut down.
Emerging Markets Charts and Views - Springtime for Emerging Markets (Amundi)
45 pages of slides etc.
Charts of the Week - Hedge fund bets, Saudi diversification, and the global dollar debate (Macrobond)
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):
Thailand Thai House of Representatives May 14, 2023 (t) Confirmed Mar 24, 2019
Turkey Grand National Assembly of Turkey May 14, 2023 (d) Confirmed Jun 24, 2018
Turkey Presidency of Turkey May 14, 2023 (d) Confirmed Jun 24, 2018
Greece Greek Parliament May 21, 2023 (d) Confirmed Jul 7, 2019
Cambodia Cambodian National Assembly Jul 23, 2023 (d) Confirmed Jul 29, 2018
Pakistan Pakistani National Assembly Jul 31, 2023 (t) Date not confirmed Jul 25, 2018
Zimbabwe Presidency of Zimbabwe Jul 31, 2023 (t) Date not confirmed Jul 30, 2018
Zimbabwe Zimbabwean National Assembly Jul 31, 2023 (t) Date not confirmed Jul 30, 2018
Pakistan Pakistani National Assembly Jul 31, 2023 (t) Date not confirmed Jul 25, 2018
Argentina Argentinian Senate Oct 29, 2023 (t) Date not confirmed Nov 14, 2021
Argentina Argentinian Chamber of Deputies Oct 29, 2023 (t) Date not confirmed Oct 24, 2021
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):
ALE Group Holding Limited ALEH, 1.3M Shares, $4.00-6.00, $6.3 mil, 5/11/2023 Thursday
We are a holding company incorporated in the BVI with all of our operations conducted in Hong Kong by our wholly-owned subsidiary, ALECS. (Incorporated in the British Virgin Islands)
We provide accounting and corporate consulting services to small and medium-sized businesses. Our services include financial reporting, corporate secretarial services, tax filing services and internal control reporting. Our business is operated through our wholly-owned subsidiary ALE Corporate Services Ltd, a Hong Kong Company incorporated on June 30, 2014 (“ALECS”). Our goal is to become a one-stop solution for all the accounting, corporate consulting, taxation and secretarial needs of small and medium enterprises operating in Asia and the U.S.
**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.
ParaZero Technologies Ltd. PRZO, 2.0M Shares, $4.00-6.00, $9.8 mil, 5/12/2023 Friday
(Note: This is a stock-only IPO again – as of its F-1/A filing dated March 23, 2023: 1.95 million shares at $4.00 to $6.00 to raise $9.75 million. This is a change from its previous structure as a unit offering of up to 1.6 million units at $4.25 to $6.25 to raise $8.4 million – terms that had been set in November 2022. Under the unit terms, each unit consisted of one share of common stock and two warrants – each to buy a share of common stock. See notes at the end of the IPO Profile on the updated terms and the history of filings.)
We are an aerospace company that is focused on drone safety systems and engaged in the business of designing, developing, and providing what we believe are best-in-class autonomous parachute safety systems for commercial drones, also known as unmanned aerial systems or UAS. (Incorporated in Israel)
Our company was founded by a group of aviation professionals, together with veteran drone operators, to address the drone industry’s safety challenges. Our goal is to enable the drone industry to realize its greatest potential through increasing safety and mitigating operational risk.
Our unique patented technology for drones, the SafeAir system, is designed to protect hardware, people and payload in the event of an in-flight failure. The SafeAir system is a smart parachute system that monitors UAS flight in real time, identifies critical failures and autonomously triggers a parachute in the event that certain parameters indicative of a free fall are present. The system contains a flight termination system, a black box to enable post-deployment analysis, and a warning buzzer to alert people of a falling drone. In addition to being fully autonomous, the SafeAir system includes a separate remote control for manual parachute deployment capability.
We have a global distribution footprint and have forged partnerships all around the world, including India, South Korea, the United States, Latin America and Europe. We sell our drone safety systems as off-the-shelf solutions, as well as perform integrations with original equipment manufacturers, or OEMs, offering customized, bespoke safety solutions for a large variety of aerial platforms.
Our technology has been sold to and used by some of the world’s top companies and organizations, including drone companies such as LIFT Aircraft, Airobotics, SpeedBird Aero and Doosan Corporation, and other leading brands such as CNN, The New York Times, Hensel Phelps, Verizon Media (Skyward), Fox Television, the Chicago Police Department and Fortis Construction.
**Note: Revenue and net loss figures are for the year that ended Dec. 31, 2022.
(Note: This is a stock-only IPO again – as of its F-1/A filing dated March 23, 2023: 1.95 million shares at $4.00 to $6.00 to raise $9.75 million. This is a change from its previous structure as a unit offering of up to 1.6 million units at $4.25 to $6.25 to raise $8.4 million – terms that had been set in November 2022. Under the unit terms, each unit had consisted of one share of common stock and two warrants – each to buy a share of common stock. See notes at the end of the IPO Profile on the updated terms and the history of filings.)
(Note: ParaZero has also registered an aggregate of 4,001,423 Ordinary Shares for resale by certain shareholders, or the Selling Shareholders, at an assumer public offering price of $5.00 per share, under a separate resale prospectus. These shareholders may sell their shares at any time – or not at all. Please see “Plan of Distribution” in the resale prospectus. The selling shareholders are not subject to any lock-up or leakage agreements, the prospectus says.)
(Note: ParaZero Technologies Ltd. filed an F-1/A dated Feb. 15, 2023, to revive its IPO – as a unit IPO – same terms as before with Aegis Capital as the sole book-runner. ParaZero Technologies Ltd. relaunched its IPO on Monday, Nov. 28, 2022, with a pricing date set for Dec. 15, 2022, and the same terms: 1.6 million units at $4.25 to $6.25 to raise $8.4 million. ParaZero Technologies had planned to price its IPO on Dec. 15, 2022, after relaunching the IPO on Monday, Nov. 28, 2022, with the unit IPO terms – 1.6 million units at $4.25 to $6.25 – but the deal was postponed.)
(Background: ParaZero Technologies Ltd.’s IPO was among several small deals whose pricing dates were delayed in mid-September 2022 after the NASDAQ put a hold on approving small-cap IPO listings during the week of Sept. 19, 2022. The IPO’s original terms – 2.53 million units at $5.20 to $7.20 to raise $15.69 million – were disclosed in an F-1/A filing dated Sept. 7, 2022. ParaZero Technologies filed its F-1 (prospectus) on May 24, 2022, after filing confidential IPO paperwork on March 11, 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.
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 (May 8, 2023) was also published on our website under the Newsletter category.