Additional December EM fund reports have dropped with China, Taiwan, Indonesia, and India stock picks being in focus this week along with stock picks in other major regions (including Eastern Europe, Latin America, Middle East, etc).
While Alibaba and Tencent have mentions this week, they are by no means the only potential Chinese stock picks out there held by emerging market funds. The same can be said of Taiwan where Taiwan Semiconductor Manufacturing (along with other semiconductor or electronics stock picks) usually gets the most attention.
Two emerging market funds seem to have different points of view regarding NYSE listed ICICI Bank whilethe Adani Group, now targeted by short seller Hindenburg Research (Adani Group: How The World’s 3rd Richest Man Is Pulling The Largest Con In Corporate History), recently took control of another EM fund stock pick.
Among the other EM fund stock pick mentions this week is an European based energy company with extensive assets in Africa and Brazil that has bounced back on improved market sentiment and expectations US interest rate hikes will soon reach a peak.
Another interesting stock pick is an Eastern European construction stock positioned to benefit from European Union (EU) funding of construction and infrastructure projects.
Finally, one EM fund mentioned a Brazilian railroad and logistics stock pick that has outperformed thanks to higher oil prices making rail transportation more competitive – also helping them to increase freight rates.
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The Fidelity Asian Values Plc (LON: FAS) December update once again noted how investors seem to be rotating out of growth stocks and into value names in the Asian small cap space. They believe this trend should continue as “small cap value stocks remain at a significant discount to small cap growth stocks.”
In addition, the fund remains biased towards small caps for three reasons:
First, it provides opportunities to invest in “winners of tomorrow” before they become well known. Secondly, it is not widely followed by professional investors and hence offers a higher likelihood of finding “mispriced businesses”. Lastly, with over 19,000 listed companies, there is a lot to choose among “winners of tomorrow” and “mispriced businesses”.
A common concern about investing in China is the potential for rising conflict between the West and China. We think this concern is exaggerated and this latest cooperation is a sign that relations may be improving.
The updates noted how Tencent rallied after China’s video games regulator granted publishing licences to 45 foreign games and 84 domestic games:
Approval of foreign games was seen as the last regulatory curb to be removed since Beijing’s crackdown on the video games industry began in August 2021. Tencent won approval to publish five imported games, including Pokémon Unite by Nintendo and Valorant by Riot Games and its own game Synced: Off-Planet. Tencent has an amazing market position in China (its apps reach ~98% of Chinese internet users), with dominance in gaming, chat services and payments (Source: Business Insider, October 2017). Given investor scepticism about China, we were able to buy it at a discount to peers, and future growth prospects have been buoyed by this regulatory move.
The updated also mentioned ZTO Express (a parcel delivery business that operates a highly scalable network partner model) and Ping An Insurance (one of the three largest integrated financial groups in China with 225 million retail customers and 668 million Internet users) were good performers.
In their Q4 updates, both funds noted how improving sentiment benefited travel website operator Trip.com (+26%) and hotel chain H World Group (+26%) which operates 8,176 hotels with 773,898 rooms in 17 countries. The latter’s Chairman was a co-founder of Trip.com, one of the largest online travel services providers in China.
I have used Trip.com (basically an Agoda clone) for hotel bookings in China and have found their English customer service to be excellent and responsive (e.g. they would call an accommodation on my behalf to double check whether foreigners are allowed to stay).
The updates mentioned heavy-duty truck engine manufacturer Weichai Power (+41%) recovered with a bottoming in Chinese truck volumes and forklift/warehouse automation subsidiary KION AG trading well while paper/containerboard manufacturer Nine Dragons Paper (+46%) benefited from a bottoming in unit margins and hopes for a recovery in end demand.
Other notable Q4 performers mentioned included:
- EM Fund Stock Picks & Country Commentaries (February 14, 2023)
- EM Fund Stock Picks & Country Commentaries (March 28, 2023)
- EM Fund Stock Picks & Country Commentaries (February 7, 2023)
- EM Fund Stock Picks & Country Commentaries (January 24, 2023)
- EM Fund Stock Picks & Country Commentaries (April 18, 2023)
- EM Fund Stock Picks & Country Commentaries (March 21, 2023)
- EM Fund Stock Picks & Country Commentaries (June 13, 2023)
- EM Fund Stock Picks & Country Commentaries (July 18, 2023)
- EM Fund Stock Picks & Country Commentaries (September 5, 2023)
- EM Fund Stock Picks & Country Commentaries (February 21, 2023)
- EM Fund Stock Picks & Country Commentaries (August 22, 2023)
- EM Fund Stock Picks & Country Commentaries (March 7, 2023)
- EM Fund Stock Picks & Country Commentaries (July 11, 2023)
- EM Fund Stock Picks & Country Commentaries (March 14, 2023)
- EM Fund Stock Picks & Country Commentaries (May 23, 2023)