Deep Value in Emerging Markets, China, India, Korea with Juan Torres Rodriguez, Schroeders | S06 E44
Dec 2, 2024
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Juan Torres Rodriguez, Portfolio Manager at Schroders, dives into the world of deep value investing in emerging markets. He discusses the inefficiencies in markets like China and India and how these present unique opportunities. The conversation highlights major players such as Alibaba and TSMC, examining their impact on indices and geopolitical stability. Juan emphasizes the need for independent thinking, macro-awareness, and careful risk management to navigate these complex systems while uncovering potential investment gems.
Emerging markets offer unique opportunities for value investors due to their inefficiencies and lower competition among stocks.
China stands out as a deep value market with low valuations, presenting significant long-term investment potential despite associated risks.
Effective portfolio management in emerging markets requires diversification and a flexible approach to navigate varying economic conditions and risks.
Deep dives
Emerging Markets as a Value Investment
Emerging markets qualify as a prime area for value investing due to their inefficiencies and lower competition, making them attractive for stock pickers. The investable universe includes approximately 25 countries, often expanding to frontier markets, which are characterized by even higher risk and higher potential returns. The diversity within emerging markets, such as the stark differences between countries like China and Colombia, allows investors to capitalize on unique opportunities present in each region. This variability creates a rich landscape where concentrated investments in well-researched stocks can yield significant rewards.
Valuation Insights in China and Hong Kong
China is characterized as a deep value market with extremely low valuations, positioning it as one of the most undervalued regions globally. Recent statistics reveal that Hong Kong companies often trade at extraordinarily low CAPE ratios, reflecting the fear and uncertainty surrounding these markets. Historical data suggests that investing in markets with such low starting valuations can lead to substantial returns over the long term. However, investors must have the fortitude to navigate the associated risks, which may include geopolitical tensions or economic instability.
Identifying Opportunities Amidst Fear
The podcast highlights that during periods of significant uncertainty, fear can lead to mispricing of quality companies, presenting opportunities for value investors. When overall market sentiment is negative, even fundamentally strong companies can be overlooked or undervalued, allowing savvy investors to acquire them at discounted prices. The example of Alibaba is used to illustrate how a once-prominent company can become a 'fallen angel' due to changing perceptions, even while its underlying business remains capable of growth. This underscores the notion that in emerging markets, a value-driven approach can yield opportunities to capitalize on discrepancies between market sentiment and actual performance.
Understanding Risk in Emerging Markets
Navigating the complexities of emerging markets requires an understanding of macroeconomic influences and the specific risks associated with individual countries. While some investors prioritize macro considerations, it is argued that having a macro-aware but not macro-led investment strategy can enhance investment choices. Risk is particularly prominent in areas with political instability or economic challenges, necessitating careful analysis and diversified portfolios to mitigate potential losses. The balance between seeking undervalued assets and understanding the inherent risks in emerging markets is pivotal for long-term investment success.
Diversification and Portfolio Management
Effective portfolio management in emerging markets hinges on diversification to offset risks associated with individual investments. Setting country risk limits is essential to prevent overexposure to any single market, particularly in volatile environments. The discussion emphasizes adopting a flexible and opportunistic approach, allowing for the identification of value across different countries and sectors based on prevailing conditions. This enables investors to build portfolios that can adapt to fluctuating market dynamics while capturing growth potential across various economic landscapes.
Value: After Hours is a podcast about value investing, Fintwit, and all things finance and investment by investors Tobias Carlisle, and Jake Taylor. See our latest episodes at https://acquirersmultiple.com/podcast
We are live every Tuesday at 1.30pm E / 10.30am P.
About Jake
Jake's Twitter: https://twitter.com/farnamjake1
Jake's book: The Rebel Allocator https://amzn.to/2sgip3l
ABOUT THE PODCAST
Hi, I'm Tobias Carlisle. I launched The Acquirers Podcast to discuss the process of finding undervalued stocks, deep value investing, hedge funds, activism, buyouts, and special situations.
We uncover the tactics and strategies for finding good investments, managing risk, dealing with bad luck, and maximizing success.
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ABOUT TOBIAS CARLISLE
Tobias Carlisle is the founder of The Acquirer’s Multiple®, and Acquirers Funds®.
He is best known as the author of the #1 new release in Amazon’s Business and Finance The Acquirer’s Multiple: How the Billionaire Contrarians of Deep Value Beat the Market, the Amazon best-sellers Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014) (https://amzn.to/2VwvAGF), Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012) (https://amzn.to/2SDDxrN), and Concentrated Investing: Strategies of the World’s Greatest Concentrated Value Investors (2016) (https://amzn.to/2SEEjVn). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law.
Prior to founding the forerunner to Acquirers Funds in 2010, Tobias was an analyst at an activist hedge fund, general counsel of a company listed on the Australian Stock Exchange, and a corporate advisory lawyer. As a lawyer specializing in mergers and acquisitions he has advised on transactions across a variety of industries in the United States, the United Kingdom, China, Australia, Singapore, Bermuda, Papua New Guinea, New Zealand, and Guam.
He is a graduate of the University of Queensland in Australia with degrees in Law (2001) and Business (Management) (1999).
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