EM Fund Stock Picks & Country Commentaries (February 7, 2023)

EM fund stock picks for China, Korea, Taiwan, and Brazil are in focus this week (among other countries and regions) as more Q4 fund updates have dropped.

However, one emerging market fund has observed how the entire emerging markets universe has become a value universe and how there is more to emerging markets than just China (as other markets offer rich gems for anyone willing to take a contrarian view and stick to it). Another EM fund mentioned how relative to history, industrials, financials, Latin America, Greater China, and Europe are all attractive from a valuation standpoint right now plus stocks in non-Asian EMs (e.g. suppliers of crude oil to China, including Saudi Arabia, Kuwait, and Colombia, or other commodities or goods) stand to indirectly benefit from China’s reopening.

One EM fund’s Korean stock pick in particular could benefit when the government starts easing regulatory rules to eliminate the so-called “Korea discount” (which they recognize as a problem) on Korean stocks (e.g. relaxing special ID registration requirements will improve access to Korean shares for foreign investors). When such changes are made, Korean stock valuations should increase.

In addition, a couple of EM fund Korean stock picks are involved in medical aesthetics technologies and therapeutics. It should be noted how Korea has the highest rate of plastic surgeries per capita in the world with one survey finding one in three South Korean women between the ages of 19 and 29 having had some kind of cosmetic surgical procedure. Other sources claim the number is possibly 50% or more than half of the population.

Meanwhile, India has an evolving health and beauty market with one Indian online beauty and personal care stock pick poised to benefit. And unlike other eCommerce stocks, this one is actually profitable.

It was also observed that Hungary is a market overlooked by foreign investors where there is a pharmaceutical stock pick benefiting from ample royalties coming from a self-developed US blockbuster drug and from continued operations in Russia.

Finally, one EM fund talked up ESG. They visited one portfolio stock (a potentially interesting fashion stock pick) to talk about (among other things…) “enhancing gender diversity” within the board (plus their update noted how the Company had hired an “external sustainability specialist” to set long-term ESG targets…). While I personally do not believe talking about gender diversity should be a priority during EM fund visits to portfolio stock picks, this may or may not make readers more interested in the fund’s holdings or this particular stock.

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Asia

East Asia

China

The Q4 update for Templeton Emerging Markets Investment Trust PLC (LON: TEM) noted key performance contributors included automaker Brilliance China (which has or had JVs with BMW Brilliance Automotive and Renault Brilliance Jinbei Automotive) and Tencent Music. Car maker Brilliance China:

… gained after trading resumed in October following a suspension of 1.5 years. The announcement of a special dividend to be paid out of the proceeds from a stake sale in its affiliate BMW Brilliance Automotive also boosted performance.

Online music entertainment platform Tencent Music:

… surged over favourable results for the third quarter of 2022 (3Q22), which showed an improvement in profitability driven by cost controls.

Chinese polysilicon producer Daqo New Energy (primarily manufactures and sells high-quality polysilicon to photovoltaic product manufacturers plus manufactures and sells photovoltaic wafers) fell with the decline in polysilicon prices and a weaker outlook for prices.

To read more, please visit this article on Substack after Tuesday, 9AM EST.

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