Emerging Market Links + The Week Ahead (March 6, 2023)
Posted June 6, 2023 by Comments
In a recent interview, Mark Mobius says he can’t get his money out of China while the government is taking “golden shares” in companies (in order to control them…). He also noted how foreign investors are “blind investing” in China according to indices (while he prefers India and Brazil). There is also a lengthy interview with Chris Wood of Jefferies and he also likes India and Indonesia.
Likewise, China itself is facing many other challenges as the country’s economy needs multiple economic transformations (to move from a manufacturing-dominated to a more consumer-driven economy). As mentioned before, among the challenges is the growing exodus of wealthy citizens (and their money) to places like Singapore (where major Chinese companies have significant outposts) and an aging population that could turn into a grey tsunami.
Meanwhile, there is a fascinating and lengthy Twitter thread on South Africa’s infrastructure and societal collapse. With that said, there are still many well managed South African stock picks as local management teams tend to know how to succeed in an increasingly difficult operating environment.
Finally, Latin America is another often troubled political and difficult economic environment, but (along with other emerging markets) offers compelling valuations (I would just be very mindful of stock selection in Brazil under Lula).
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‘I can’t get my money out’: Billionaire investor Mark Mobius says China is restricting flows of capital out of the country (The Insider)
NOTE: He also mentioned in the video interview (below) about the government taking “golden shares” in companies and foreign investors “blind investing” based on indices. Also check out Chinese banks cause alarm as capital flight measures intensify (asiaMARKETS.com) (“Chinese nationals living abroad are growing concerned about long delays to access funds held in Chinese banks”).
- “I’m personally affected because I have an account with HSBC in Shanghai. I can’t get my money out. The government is restricting the flow of money out of the country…”
- “It’s just amazing. They’re putting all kinds of barriers,” he said. “They don’t say, ‘No, you can’t get your money out,’ but they say, ‘Give us all the records from 20 years of how you’ve made this money,’ and so forth. It’s crazy.”
- India is a place that investors should consider, he said. “You’ve got a billion people, they can do the same thing that the Chinese do. They can do the same kind of manufacturing and so forth,” Mobius said. “I’m now in Brazil, and Brazil, you’ve got 250 million-plus people. Very good people, open society. Hey, why not come here? It’s another alternative.”
Mark Mobius: Be ‘very, very careful’ when investing in China 6 Minutes
As China Reopens, Flight of Wealthy Chinese to Singapore Set to Accelerate (WSJ) $
- Advisers to new arrivals say another factor driving Chinese nationals to move abroad is unease over a darkening climate for accumulating wealth in China, as Mr. Xi talks up the need for greater redistribution in his drive for a more egalitarian society.
- Around 10,800 wealthy Chinese left the country in 2022, according to estimates from New World Wealth, a research firmthat tracks the movements and spending habits of the world’s high-net-worth citizens.
- The influx is visible in corners of Singapore’s economy. House prices rose 8.6% in 2022, according to OrangeTee & Tie, a real-estate research company, which in an October report said buyers from China bought more condominiums last year than any other group of foreigners.
NOTE: Most of the story is paywalled BUT the Tweets in this thread gives you the important details:
Will China grow old before it grows rich? (Lombard Odier Investment Managers)
[Also see China Scrambles To Save Plummeting Birth Rate With Pregnancy Perks on Zero Hedge.]
- China is going to have to contend with an extreme example of a coming demographic winter. According to the latest demographic forecasts from the United Nations (UN), the Chinese population may well shrink from a peak of just below 1.5 billion to somewhere between 600 and 800 million by this century’s end. A halving of its population will make extremely difficult for China to overtake the US as largest economy, especially as the US is expected to have a slightly increasing or stable population.
- China requires multiple economic transformations to come from a manufacturing-dominated to consumer-driven economy, and prepare for the grey tsunami at the same time. The looming demographic winter will not make it any easier.
The Tesla Competitor Dominating China’s EV Market | U.S. vs. China (WSJ) 8 Minutes
NOTE: Also check out How did China come to dominate the world of electric cars? (MIT Technology Review).
- Elon Musk’s Tesla is facing pressure in China from the country’s top electric-vehicle company BYD, backed by Warren Buffett. WSJ unpacks the business and manufacturing strategy of BYD and Tesla to uncover what the competition in China reveals about the race to own the global EV space.
- 0:00 China-based BYD has closed in on Tesla’s share of the Chinese EV market
- 0:47 Tesla vs. BYD’s business strategies
- 2:58 Tesla vs. BYD’s battery tech
- 5:22 Tesla vs. BYD’s EV manufacturing capabilities
- 6:51 What this means for the future of the global EV market
Chris Wood Of Jefferies (MPP Interview) (Off-Piste Investing) 53 Minutes Video
NOTE: Chris Wood, the global head of equity strategy for Jefferies, was a recent guest on the Market Policy Partners podcast for a long form discussion of his views on global markets. Off-Piste Investing has a good summary here.
- OUTLINE FROM OFF-PISTE INVESTING: Energy, Outlook for emerging markets, Japan, Gold, & Escalation of the China/Taiwan situation
- If he had to highlight an area which outperformed global benchmarks last year but historically has been negatively impacted by a strong dollar and higher rates, he would point to Indonesia. He thinks we are on the brink of a sustained period of emerging market outperformance in equities.Allocations towards emerging markets have also turned down a lot and in terms of the frontier markets, allocations have almost collapsed so there is huge potential for money to flow into this area. But there will be some people who won’t be comfortable investing in China, so you also have this growing interest in the emerging markets ex-China asset class. More broadly, he says liquidity is a movable feast, so the key point is to get positioned before the liquidity arrives.India has been his favorite stock market to own for many years from a long-term standpoint. He thinks if you have to own one market globally for 10 years and you’re not able to sell, you should own the Indian market because this is a strong domestic demand story, it has positive population dynamics, there have been significant economic reforms particularly under Modi and there are a lot of good companies. So India is undoubtedly the best stock market over the long-term in his view. Short-term though, India is expensive; it is trading at 19 times forward earnings at the start of this year and India is also being sold this year to fund increased positions in China.
Time Line of the video interview:
- 00:00 Chris Wood Introduction
- 00:45 Covid- big difference. White collar vs Blue Collar
- 3:10 Inflation, yesterday’s issue. Money supply is driver, Inflation heading to less than 1%. Recession should be the focus.
- 06:00 Will the Fed blink? Yes, if inflation is tame and the economy slumps. Markets are right to predict this.
- 06:40 The Fed’s thinking today
- 08:05 Energy is the wild card. Fundamentally under-supplied market that is not likely to change. Shale has peaked out geologically as well. Dangerous potential catalyst for higher inflation.
- 11:40 Big difference between political rhetoric and economic reality of global dependance on oil. 82% of global energy usage is carbon-based, way too high for alternatives to fill gaps.
- 12:15 China and COVID- tail wind for global GDP. COVID peaked in early January according to official stats.
- 16:15 China market recovery, in early stages and has legs, pullbacks are actionable
- 17:30 Key issue in China- the property market is measure of middle class confidence
- 18:30 Emerging markets asset class, bullish thesis. On the brink of a sustained period of equity outperformance, following years of EM bond outperformance. Investors are underweight.
- 22:13 India – 10 year hold- strong domestic demand story.
- 23:30 Other Emerging Markets, “Liquidity is a moving feast”- be positioned before the rush.
- 24:35 Long Term Debt Cycles? Excessive private sector debt led to a transfer to government debt acceleration. The coming financial repression reinforces the thesis of Emerging Markets outperformance.
- 27:15 US market outlook? Price: Sales- very expensive still. Recession is the swing factor- if there is one, eps cuts will hurt stocks; M2 declines are ominous for US stocks and the US economy is likely to see recession in 2H23.
- 29:27 Europe: ECB has gotten things so wrong with the insanity of negative rates because it hurt banks so badly… until recently.
- 31:00 Middle East – big favorable changes there now. Saudi Arabia. Foreign firms are being encouraged to list in SA.
- 34:05 Gold, how attractive an asset class? Performance in ’22 was very impressive given the environment. Watch Gold ETFs for the real signal of demand.
- 36:25 Record central bank activity in gold
- 37:10 Digital Assets? Started writing about it in 2017. Bitcoin has passed the test of time, so it should be viewed as an established asset class. Institutions should allocate some portion of assets to it. Millennials don’t buy gold, they buy Bitcoin, so it is a realistic alternative to gold, at least for the future retail demand expectations. Very impressive start to the year. 30-35% chance Bitcoin has bottomed.
- 39:30 China and CBDCs, watch carefully. Programming money is a slippery slope. 4
- 2:37 Financial repression- what do governments do when long rates go too high. Fiscal problems become unsustainable. Watch Japan. Policies to force people to own government bonds.
- 43:55 Japanese monetary policy – very difficult situation- a pressure cooker and “its just a matter of time”. Yen repatriation for getting yield at home. Currency hedging eliminated the extra yield, so Japan stopped buying US Treasuries.
- 47:55 Geopolitics – Taiwan – what’s the risk of a China move? Chinese are not thinking about it much.
- 50:15 Semiconductor industry and Taiwan is a far more important investment issue than the threat of a China move against Taiwan, both for China and Taiwan
- 51:48 Ukraine impact on financial markets- escalation is a threat because markets are complacent, and tanks from NATO countries moving into Ukraine is a risk, especially if Ukraine begins moving into Russia.
Our thoughts on Grab’s 2022 Q4 and FY earnings (Momentum Works)
- Overall the numbers are positive – especially on the path to profitability which has been the top concern of the market since the current Fed rate hike cycle started. The market, however, responded with a 8% drop in Grab’s share price on the first trading day after the announcement.
- 9. Has anyone ever noticed how expensive it is to do a listing on NASDAQ? According to Grabs adjusted EBITDA breakdown, in Q4 2021 it spent US$328m on “share listing and associated costs”.
While this is definitely worth it for Grab (it raised more than US$4 billion during the PIPE round), the listing (and ongoing compliance) costs are what Web3 proponents are trying to resolve through the blockchain.
South Africa’s Infrastructure + Societal Collapse (Twitter Thread)
Note: Lengthy Twitter Thread with numerous links to sources:
South Africa has collapsed, here’s why:
- Part 1: Intro
- Part 2: The wasteland
- Part 3: Societal collapse
- Part 4: Final outcome
- Part 5: Doing good
Oceana sees spike in canned fish sales as customers seek cheaper protein options (IOL)
NOTE: A good example of the ability of South African companies to deal with growing difficult on-the-ground realities of the country. Apparently, fishing/fishery stocks are doing well in general:
- The group said the main reasons for the increase in earnings were higher opening inventory levels, strong local demand for canned fish and firm international pricing for fishmeal and fish oil.
- The group remained relatively well protected against the increased incidences of load shedding in South Africa given that its vessel operations rely on self-generated power and its canning and fish meal operations on the Cape West Coast rely on coal boilers for power. There was also back-up generating capacity.
TWK is not your common or garden agricultural sector counter (financialmail) $
NOTE: An agricultural services and timber stock:
- Agricultural counter TWK Investments, which listed on the Cape Town Stock Exchange (CTSE), is one of the handful of agribusiness counters covered in past editions of IM.But of all those counters IM has covered, TWK — over a five-year period — has ploughed the most profitable furrows by a significant margin.
Gruma – LATAM Stocks Investment Analysis #13 (LATAM Stocks Substack)
- This edition will cover Gruma, a Mexican company that is the largest producer of corn flour and corn tortillas in the world. They have a truly global presence in over 110 countries. But their core markets are The United States and Mexico, where they dominate the corn flour and corn tortilla categories under three major brands; Mission, Maseca, and Guerrero.
- Gruma is solid financially with sufficient liquidity and healthy margins. The company consistently pays a dividend and has a share buyback program. However the current valuation is not cheap. Investors have been willing to pay up for this well managed category leader.
Brazil Beckons with Low Valuations and Growth Potential (Van Eck)
- We examine Vamos and Rede D’Or, two industry leaders with substantial market share, and explore how they are well-positioned to benefit from improving valuations in the Brazilian market.
- Vamos: Brazil’s Leading Truck and Equipment Rental Company with Growth Potential and High Profitability
- Rede D’Or: Brazil’s Leading Hospital Operator Poised for Growth and Consolidation
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):
Nigeria Nigerian House of Representatives Feb 25, 2023 (d) Confirmed Feb 23, 2019 Nigeria Nigerian Senate Feb 25, 2023 (d) Confirmed Feb 23, 2019 Nigeria President Feb 25, 2023 (d) Confirmed Feb 23, 2019
- Estonia Estonian Parliament Mar 5, 2023 (d) Confirmed Mar 3, 2019
- Kazakhstan Kazakh House of Representatives Mar 19, 2023 (d) Confirmed Jan 10, 2021
- Turkmenistan Turkmen National Assembly Mar 31, 2023 (t) Date not confirmed Mar 25, 2018
- Bulgaria Bulgarian National Assembly Apr 2, 2023 (d) Confirmed Oct 2, 2022
- Paraguay Paraguayan Chamber of Senators Apr 30, 2023 (d) Confirmed Apr 22, 2018
- Paraguay Presidency of Paraguay Apr 30, 2023 (d) Confirmed Apr 22, 2018
- Paraguay Paraguayan Chamber of Deputies Apr 30, 2023 (d) Confirmed Apr 22, 2018
- Thailand Thai House of Representatives May 7, 2023 (t) Date not confirmed Mar 24, 2019
- Greece Greek Parliament Jun 8, 2023 (t) Date not confirmed Jul 7, 2019
- Turkey Grand National Assembly of Turkey Jun 18, 2023 (t) Date not confirmed Jun 24, 2018
- Turkey Presidency of Turkey Jun 18, 2023 (t) Date not confirmed Jun 24, 2018
- 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
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):
Intchains Group Ltd.ICG, 1.3M Shares, $7.00-9.00, $10.0 mil, 3/6/2023 Week of
- We are a provider of integrated solutions consisting of high-performance ASIC chips and ancillary software and hardware for blockchain applications. (Incorporated in the Cayman Islands)We use a fabless business model. We specialize in the front end and back end of IC design, which are the major components of the IC product development chain. We have established strong supply chain management with a leading foundry, which helps to ensure our product quality and stable production output.Our products consist of high-performance ASIC chips that have high computing power and superior power efficiency as well as ancillary software and hardware, which cater to the evolving needs of the blockchain industry. We have built a proprietary technology platform named “Xihe” Platform, which allows us to develop a wide range of ASIC chips with high efficiency and scalability. We design our ASIC chips in-house, which enables us to leverage proprietary silicon data to deliver products reflecting the latest technological developments ahead of our competitors.
XIAO-I Corp.XI, 6.0M Shares, $6.80-8.80, $46.8 mil, 3/9/2023 Thursday
- We are a cognitive intelligence company operating through our subsidiary, Shanghai Xiao-K. We offer a portfolio of cognitive intelligence technologies for businesses that use natural language processing and AI implementation.**Note: Revenue and net income are for the 12 months that ended June 30, 2022.**Note: The ADS in the IPO will be issued by the Cayman Islands-incorporated holding company and not by the underlying business based in Shanghai, China.(Note: XIAO-I Corp. disclosed the price range – $6.80 to $8.80 – for its IPO of 6.0 million American Depositary Shares (ADS ) – to raise $46.8 million in an F-1/A filing dated Feb. 13, 2023. The company had revealed the number of ADS in the IPO in an F-1 filing dated Dec. 19, 2022. Each ADS equals one-third of an ordinary share. XIAO-I Corp. submitted confidential IPO documents to the SEC on July 8, 2022.)
EM 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:
- 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
EM ETF Closures/Liquidations
Frontier and emerging market highlights:
- 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 (March 6, 2023) was also published on our Substack.
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