Emerging Markets - High Growth For Basic Industries

Summary

• EM's Offer High Growth for Basic Industries long relegated to Value in the U.S.
• Stock Picking on Local Exchanges Provides Opportunities not Available in ETF's and Mutual Funds.
• Many Countries Require Registration to trade locally adding value enhancement to those with access.
• Acquire long before registered as an ADR.

With the return of equity market volatility, historically high values for equities, and rising inflation and interest rates, where should investors invest new money or shift portfolio dollars?

As global equity managers we currently find more reasonably priced, high growth companies in developing countries than in the U.S., Europe or Japan. Developed market investors seeking growth must chase high P/E Multiples in industries such as Electric Cars, The Internet of Things, Social Media, and the like.

Basic Service Companies, Food, Banking, Housing, and Cosmetics on the other hand have been relegated to either low growth, dividend or cyclical exposure for decades.

Emerging markets, however, offer investors an opportunity for sustained long term growth in basic industries in India, China, Hong Kong, the Philippines, Malaysia, Poland, Turkey, Cambodia, and Vietnam, all driven in part by these market’s rapidly expanding middle class.

An Example is as Follows:

	- Company	VINGROUP JSC
	- Description	Vietnam’s Largest Listed Real Estate Developer
	- Market Cap.	$10.9 Billion
	- Insider Ownership	43%
	- 2018 Return YTD	+21.6%
	- 52-Week Total Return	+108.9%
	- YOY Revenue Increase	56.8%
	- Pipeline	91 million square miles of land; estimated 10 years development

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VIETNAM HIGHLIGHTS

• Population 100 million
• Median Age 30.7, as compared to age 36 in China
• Education spending 6.3% GDP; 15-year-olds in Vietnam outscore U.S. and British counterparts in math and science
• Rural population percentage: Vietnam +70%, India +70%, China +44%. Reservoir of rural workers will reduce wage pressures, allowing for labor-intensive industries
• 25% of annual capital spending from foreign capital. Trade accounts for 150% of national output, more than any other country at its level
• Government friendly to commerce, providing companies with confidence to build factories.
• Since 1990, growth averaged nearly 6% per year, per person, second to China, lifting it from among the world’s poorest countries to middle-income status.
• Border with China places it closer to the manufacturing heartland of southern China. As Chinese wages rise, Vietnam becomes a natural hub for low-cost production.

While many U.S. investors find this thesis intellectually appealing, most are not able to access these types of companies as the shares do not trade in the U.S.

Also, investors will need professional managers to get comfortable with governance and veracity of financials in remote places such as Vietnam, Cambodia and India.

David Gong, Lead Manager of our EM Portfolio brings 35 years of experience including living in Asia as former Manager of Rowe Price Fleming's Hong Kong Office.

We recommend that growth investors build a portfolio with companies like VinGroup that are:

1. Well run
2. Growing rapidly
3. Off the radar screen
4. Generally Not available in Mutual Funds or ETF’s

Analyst’s Disclosure: I am/we are long VIC VN (SEDOL: B27Y417). I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.