Favorable demographics, compressed valuations, and urbanization create a compelling investment case for emerging markets.
Strong governance, insider buying, and careful research are crucial when investing in emerging markets.
Deep dives
Investing in Emerging Markets: Demographics, Valuations, and Urbanization
Investment manager John Haskell discusses the opportunities in emerging markets and his focus on demographics, valuations, and urbanization. He emphasizes that emerging markets have a favorable demographic profile, with youthfulness contributing to economic growth. Haskell also notes that valuations in emerging markets have been compressed, creating potential opportunities for value investors. Furthermore, he highlights the significant impact of urbanization, as emerging market cities capture nearly all projected human population growth. This trend drives the need for upgrades in the built environment, such as public transportation and cleaner living spaces. Haskell believes that these three factors - demographics, valuations, and urbanization - create a compelling investment case for emerging markets.
Opportunities in Specific Emerging Market Companies
Haskell shares insights into specific companies in emerging markets that present attractive investment opportunities. He mentions Pakuwon Jati, a real estate company in Indonesia, as an example of a value investment. Their ownership of the Marriott Hotel in Yogyakarta, acquired during the COVID-related downturn, showcases their opportunistic strategy. Haskell also discusses Fortress Real Estate, an industrial-focused company in South Africa with attractive valuations due to its complex shareholder structure. Despite negative headlines about South Africa, he finds idiosyncratic opportunities in companies like Fortress. Overall, Haskell looks for companies with strong balance sheets, competent management, and compelling valuations in markets that may be overshadowed by negative sentiment.
Governance and Insider Activity in Emerging Markets
Haskell emphasizes the importance of governance when investing in emerging markets. He looks for companies with strong alignment between management and shareholders, as well as competent and disciplined capital allocation. Haskell also highlights the occurrence of insider buying as a positive signal. He cites examples of companies in his portfolio, like Fortress in South Africa, where insiders, including top executives and large shareholders, have been actively buying shares. This insider activity reinforces his confidence in their stewardship and potential future returns. Haskell acknowledges the need for careful research and due diligence in navigating governance concerns in emerging markets.
The Macro Landscape and Outlook for Emerging Markets
Haskell discusses the macro factors impacting emerging markets and their potential future performance. He acknowledges that China's real estate bubble and lower commodity consumption may have short-term effects on certain emerging markets. However, Haskell emphasizes that commodity demand is driven not only by China but also by employment and rising wealth in commodity-exporting economies. He notes that while some emerging markets have experienced significant sell-offs in the last decade, he is optimistic about their future prospects. Haskell believes that attractive valuations and improving fundamentals, combined with his specialized expertise in this area, position him to continue compounding capital in emerging markets for the long term.
