Emerging markets: when the crowd gets it wrong
Short Briefings on Long Term Thinking - Baillie Gifford
Reliance’s Long-Term Capital Allocation
Alex Summers describes how patience and on-site research at Jamnagar shaped conviction in Reliance’s investments in telecoms, retail, and green energy.
The biggest car-carrying ships on the planet. A chip-testing rig that weighs as much as a small elephant. Investment manager Alex Summers takes us inside some of emerging markets’ least-watched growth companies to explain how his team sees what others have missed. “Often, the crowd is going to be right,” he acknowledges, but when it’s not, long-termism, access to management and asking different questions are key to how his team determines investment opportunities.
Background:
Alex Summers is co-manager of our Emerging Markets Leading Companies Fund, an investment manager in our Emerging Markets Equity Team and a member of the International Growth Portfolio Construction Group.
In this conversation, he tells Short Briefings… host Leo Kelion why one of his team’s guiding principles is that before investing in a company, he and his colleagues must be able to articulate the critical uncertainty about a stock and why others may be wrong.
“Often, you can observe something about a company, and it may be true,” he explains. “But if everybody else believes that, you’re not going to create any additional outperformance by owning those companies.”
Companies discussed include:
Hyundai Glovis – the logistics company that’s invested in a dozen ultra-sized ships and now sees an opportunity in transporting spent electric vehicle batteries
Chroma ATE – the test-equipment company whose customised cabinets provide critical checks for NVIDIA and Nasa
Silergy – the mainland China-based semiconductor company specialising in power-management chips
Reliance Industries – India’s most valuable company and its heavy investment in solar panels, green hydrogen and battery storage systems
Toss – the South Korean financial super-app that provides banking, payment and ecommerce services
Resources:
Emerging Markets Leading Companies Fund
Emerging markets: from imitators to innovators (video)
Emerging markets: the next engines of global growth
Short Briefings on Long Term Thinking podcast archive
Companies mentioned include:
· Meituan
· NVIDIA
· Silergy
· SK hynix
· Talabat
· Toss
· TSMC
Timecodes (audio version):
00:00 Introduction
01:45 From Toronto to Edinburgh
02:35 A lesser-covered class of companies
03:35 Taking a five-to-10-year view
04:15 Forming non-consensus views
05:35 Hyundai Glovis and EV batteries
07:10 Corporate governance reform in South Korea
09:30 Getting access to senior leaders
11:50 Chroma ATE’s chip-testing equipment
14:50 Building conviction in Silergy
16:30 Declining to invest in Talabat
18:20 Visiting Reliance Industries in Jamnagar
20:45 Retaining sell discipline
22:00 Toss and private companies
24:15 Moving towards physical assets
25:35 Podcasts and Substack picks
Glossary of terms (in order of mention):
Magnificent Seven: A nickname for seven large US technology-related companies – Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA and Tesla.
Holding period: The length of time an investment is owned.
Corporate governance: The systems and processes by which a company is directed and controlled, including board accountability and the treatment of shareholders.
Minority shareholder: An investor who owns less than a controlling stake in a company and cannot direct it alone.
Bottom-up investing: Assessing individual companies rather than starting with forecasts for economies, markets or sectors.
Economies of scale: Advantages that arise as a company handles more volume, reducing the average cost of each unit.
Profit margin: The proportion of revenue left as profit after costs have been deducted.
Graphics processing unit (GPU): A chip designed to perform many calculations in parallel, originally for graphics but now also widely used in AI.
Analog chip: A semiconductor that processes continuous real-world signals, such as sound, temperature or voltage.
Flotation or initial public offering (IPO): The process by which a private company first offers shares to public investors and lists them on a stock exchange.
Cash flow: The movement of money into and out of a business over time.
Capital allocation: The decisions a company makes about how to use its money, such as investing in growth, making acquisitions, paying dividends or reducing debt.
Business vertical: A distinct business area within a company, usually focused on a particular product, service or market.
Overweight: Holding more of an investment, sector or theme than the index used for a comparison.
Fintech: Technology-driven financial services, such as digital payments, lending or banking tools.
Insurance brokerage: A business that helps customers compare and buy insurance, acting as an intermediary between them and insurers.
Capital-light: Describes a business that needs relatively little investment in physical assets to operate and grow.
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