Emerging market fund stock picks to highlight this week (among other stocks also getting mentions late on in this post) with some quick takes being:
- Several stock ideas for exposure to China without having to invest in Chinese stocks.
- Five Indian stock horror stories that have taken investors for a wild ride – like the sort of ride that dot.com or 3D printing stocks took investors on (or Enron had it not collapsed…). However, the worse could be over for some of these stocks while others are in for more trouble.
- An Indian airline plus an airport stock tapping into growing domestic travel trends in India.
This post is more focused on a couple of recent and long podcast interviews – one from a fund manager discussing investing in China and the other two are of fund managers focused on India who talk extensively about the transformation occurring there.
In the first interview, a fund manager observed how they keep putting Chinese stocks into indices at the wrong time and how almost all Chinese private sector companies are still founder controlled (whereas elsewhere in Asia they are are on the sector, third, etc. generation). In other words, Chinese companies are still “driven” and want to do something different.
With all the negativity surrounding China right now, this would be a huge positive for Chinese companies. On the other hand, it also means aggressive competition while capital allocation and dividend policies leave more to be desired by investors.
In addition, he also made the observation that the best time to buy is when an economy is on its knees and a poor economy is not necessarily bad as that forces management to think differently. In other words, don’t completely rule out places like China.
Other recent interviews covered in this post focus on India and cover the transformation occurring there. For example: One fund manager noted that Indian domestic airline travel is set to explode (as the first thing people want to do is see the sights of their own country…) plus talked about the “India stack” (digital public infrastructure – see our July 25th post for a more detailed discussion along with stocks benefiting from this government initiative). He also thinks the India Stack is the country’s secret weapon.
In another podcast interview, a fund manager made the point that state-owned banks were 90% of the Indian market 15 years ago and are now 60% of the market with private banks grabbing even more market share. He emphasized that there are lots of opportunities in other Indian sectors where a great operator can still come in and dominate an industry.
However, this fund manager also explained how deep value investing does not work in India as bad companies with corruption, excessive leverage, obsolete businesses, and other problems might still be growing at 10%. In fact, he said the most risk in India is with the cheapest companies whereas in the US market you can still find a margin of safety with stocks trading at a deep value.
This brings me back to the five Indian stock horror stories. It could be said that all of these stocks were high flyers in the sorts of promising Indian sectors that investors (and the interviews covered in this post) talk about…
And yet, something went wrong…
All of them highlight the risk that comes with investing in India or any emerging market or particular sector (think AI…) going through a rapid transformation accompanied by lots of hype…
Finally, this post briefly covers Fairfax India Holdings Corp (TSE: FIH.U / FRA: F5X / OTCMKTS: FFXDF) – a Canadian listed entity founded by the so-called “Canadian Warren Buffett.” While such a stock would not come with the sorts of risks that our five Indian stock horror story stocks come with, there is an issue about Fairfax that was pointed out a few years ago (as in “Warren Buffett doesn’t do this…”) that might cause investors to pause and look elsewhere for better ways to profit from India’s transformation…
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