There are some fantastic companies in Russia, but with the country facing an uncertain future, we decided it was better to sell.
Which countries and actions in space do you think will be the biggest winners and losers from the Russian-Ukrainian conflict?
For a host of reasons, commodity prices were already rising before the invasion, but the war added fuel to the fire. Together Ukraine and Russia are major exporters of hydrocarbons, wheat, fertilizers, palladium, titanium, diamonds and many other esoteric elements of the periodic table. Stock markets in commodity-exporting countries in the Persian Gulf, Latin America and elsewhere have finally rallied amid market concerns about a lasting disruption in commodity supplies.
Conversely, equity markets in countries close to the theater of war such as Poland and Hungary underperformed, as did many stock markets in Asian commodity-importing countries.
Can investors afford to ignore investing in China? If not, do you think Chinese stock markets look attractive?
Stock markets in China can only be invested if investors incorporate political governance considerations into their investment process.
If a Chinese company fails to support the Communist Party of China’s national development goals of decarbonization, innovation and shared prosperity, that company will face regulatory pressure at a time and on a scale that no one can predict. .
There are signs that we are nearing the end of the period of increased regulatory orderliness which will support equities, but the COVID-related lockdowns in China may cloud the situation in the shorter term.
Which emerging market is under-recognized by investors?
Vietnam is a frontier market not yet in emerging markets, but I wouldn’t be surprised to see it added to the benchmark in the next five years.
In a world looking to diversify its supply chain from China, Vietnam is a natural beneficiary given its young, educated workforce and favorable business climate. Samsung Electronics’ smartphones are already the country’s biggest export. The story reminds me a lot of China two or three decades ago.
However, now is the time to investigate the most promising horses to support. As befits a frontier market, Vietnamese consumer staples feature prominently in the opportunity mix, but we’ve broadened our horizons to include banks, retailers and property developers.
What do you need to see before you start investing in Russia again?
Russia cannot invest in the foreseeable future. We do not see a plausible investment case for Russia in the medium term that gives us confidence, even if Western sanctions are lifted and Russian capital controls are lifted.
Putin chose confrontation with the West and the established world order. As a result, the accelerated flight of educated young Russian talent and the loss of access to Western capital and technology will severely undermine Russia’s future.
What is the most exciting opportunity for emerging markets and which stocks are best positioned to take advantage of it?
In the past, the investment case for emerging markets has largely revolved around two themes: outsourcing and convergence. TSMC, Hon Hai and Infosys are examples of successful outsourcing business models.
The other pillar is convergence, which means that household needs change and increase as income levels rise, which in turn drives demand for consumer goods, financial products and other services. increasingly sophisticated. HDFC and Wal-Mex played on this theme of convergence.
However, we are now seeing a third reason to invest in emerging markets emerge, namely innovation.
Living in Boston, what do you like to do outside of work?
A month ago, I would have said I’m a football fanatic and like to host a weekend game with friends whenever the weather in Boston permits – but an Achilles injury during a recent match limits my enthusiasm for the moment.
How did you become interested in emerging markets?
My grandfather left civil war Spain to see his chain of hardware stores nationalized decades later during the Cuban revolution. My mother left Peru after a bloody military coup. My wife is a Soviet refugee. I have always been fascinated by why countries have failed their people and why some have succeeded. This family history led me to MI.
It is not an asset class that can be analyzed from afar. It is a highly tactile asset class with many dimensions affecting returns, the main ones being history, economics, politics and geopolitics. Frequent travel is a necessary condition for investing. There is also good food and culture at EM!