Scaling the emerging markets landscape

--  |   12/09/2019 Text size  Decrease  Increase   |  
email_fwd
<p><strong>Lex Hall:</strong> Hi, I'm Lex Hall for Morningstar, and welcome to another edition of "Ask the Experts." Today I'm joined by Rohit Chopra, who co-manages the Emerging Markets Equity strategy at Lazard Asset Management. We're going to talk about the trade war, its effects and see where some opportunities and some risks lie in the emerging market space.</p> <p>Rohit, thanks for joining us.</p> <p><strong>Rohit Chopra: </strong>Thank you, Lex. Thanks for the opportunity.</p> <p><strong>Hall:</strong> There was a glimmer of hope overnight in the last few days in the trade war, do those kind of things &ndash; are you cynical about these kind of developments or do you&hellip;?</p> <p><strong>Chopra: </strong>Well, I think the most important thing is to have awareness across the capital structure, you need to do scenarios in terms of your bottom-up analysis. Even investing in emerging markets, you're not buying India Inc., Brazil Inc., or China Inc. you're actually investing in companies that happen to be based in the emerging markets. And we think it's really important in assessing those bottom-up opportunities to have a framework to look at issues like trade war and macroeconomic risks.</p> <p>My personal view is that these issues are likely to be topical for the long being &ndash; for a long time. I think that there are some national strategic security issues that are in play, particularly around 5G and technology and sort of the next sort of "fourth industrial revolution" around technology. But, yes, it is definitely, I think an opportunity also for us to identify compelling businesses.</p> <p><strong>Hall:</strong> OK. Let's talk specifically for a moment about some of the big names, Chinese companies; Alibaba, Tencent; not a Chinese company, Taiwan Semiconductor&hellip;</p> <p><strong>Chopra: </strong>Sure.</p> <p><strong>Hall:</strong> &hellip;Manufacturing, how do you think they fit? They've had a rough ride do you think recently or ...?</p> <p><strong>Chopra: </strong>Well, I think they have very different businesses. So, prior to even the trade issue, you have seen a slowdown in the manufacturing context for smartphones. So that has had an impact on the more semiconductor memory manufacturers.</p> <p>In terms of the internet companies like Alibaba and Tencent they have very compelling business models, actually, we think that they are going to be long-term winners. With that said, we actually don't have investments in our relative value strategy there. We don't believe that those companies are significantly mispriced; we're really trying to focus on financial productivity and the valuation that one is paying for those. Our goal is not to necessarily buy growth companies that may necessarily be generating superior levels of profitability, but really buying those &ndash; investing into businesses, where we think there is a fundamental mispricing.</p> <p><strong>Hall:</strong> Let's talk about your methodology. You travel a lot, and one of your strengths is that you spot good picks that other companies may be overlooking. What are some of the strategies that you do to &hellip;?</p> <p><strong>Chopra: </strong>Well, I mean, I don't think that we necessarily always spot great picks. I think one of our greatest advantages is that we represent long-term money. We have a framework that we think allows us to go beyond sort of short-term market noise and focus on those fundamentals. At Lazard, we have over 70 people that spend 100% of their time focusing on the emerging markets. And what's important about that they are across the capital structure. So, I have colleagues that spend time focusing on the dollar debt, the corporate debt, the local currency. And that's really helpful because as we know, sometimes political or macro events can impact the underlying equity that we may be investing in. So, our framework is really to focus on what we describe as financial productivity and valuation. And what is financial productivity? For us, it's really the decomposition of return on equity. So, what is the company generating in terms of sales and profits? How capital-intensive is that business? And how do they think about capital structure around leverage? These are all three key important components of what we describe as financial productivity. And we're trying to balance the two when it comes to valuation.</p> <p>All else equal, we believe a business should be worth more if it can offer high and sustainable levels of financial productivity.</p> <p><strong>Hall: </strong>OK. We'll talk about some specific names in an upcoming video, but bright spots in certain regions, where would you nominate?</p> <p><strong>Chopra:</strong> Yeah, so I think some of the bright stars is that there's a lot of value out there. So, for example, in the Russian market, we find the anomaly where dividend yields are higher than P/E multiples and we're not in a crisis environment. I mean, today, Russia can go out and buy back its sovereign debt, its corporate debt and its individual debt. Essentially, from a perspective of a balance sheets, say, at a net cash position. They've had to deal with the challenges of sanctions and their access to long-term funding. But that is all meant that there are companies that are actually going to become unintended winners in this environment, and we can we can identify those.</p> <p>In Brazil, for example, after a very difficult recession and, obviously, they got their growth wrong. You're starting to see a bit of recovery from one of their most difficult recessions in recent period. They're implementing now a &ndash; are in the process of implementing a Pension Reform Act. If passed, it's about $240 billion that will go back into investing in the economy. There's plans to kick start the privatisation program in the country. So, I think there's always opportunities that present themselves. And the reality is that very often, when investors get so focused on the headline risks, they sometimes throw the baby out with the bathwater. And I think that's where we're seeing today an environment where, on the margin, where you want to be focused is not in those quality at any price type businesses, which have been rewarded. And because there was so much fear out there. Medium to long term, we're starting to see some of those fundamentals improving and they happen to be in some of those more economic &ndash; slightly more economically sensitive areas. The financials, for example, is an area where in EM nonperforming loan is at peak. We're starting to see a rebirth of lending and animal spirits in certain parts of the markets coming back.</p> <p><strong>Hall: </strong>OK. Rohit, thanks for your insights today.</p> <p><strong>Chopra: </strong>Thank you. Thanks for your time.</p> <p><strong>Hall: </strong>I'm Lex Hall for Morningstar. Thanks for watching.</p>

Video Archive...

An undervalued, wide-moat name in healthcare
27/05/2020  Companies racing for a coronavirus cure have moved to lofty valuations. Morningstar analyst Alex Morozov is looking for lesser-known healthcare names.
5 investing mistakes to avoid
20/05/2020  Christine Benz discusses pitfalls investors encounter as they navigate volatility and recovery.
Ugly housing outlook won’t last
19/05/2020  Adelaide Brighton, Amcor and Bingo should ride out the housing construction slump with relative ease, says Morningstar’s Grant Slade. 
3 stocks set to clean up
18/05/2020  The biggest corporate hygiene company you never heard of; Dettol's parent company; and a lab supplier are tipped to benefit post-coronavirus.
Greencape's three top picks
13/05/2020  Property listings, software for financial planners and AI machine-learning: Jonathan Koh has scoured the globe for opportunities.
Where to hunt when guidance statements get torn up
12/05/2020  Greencape Capital entered the downturn with a cash reserve that has allowed it to snare some essential services companies at bargain prices, says Jonathan Koh.
Investing basics: the hardest decision in investing
08/05/2020  When and how should you get back into equity markets after panic selling?
Weighing up Australia’s banks
07/05/2020  Bad debts and expected capital raising from three of the big four cloud the outlook for Aussie banks, says Morningstar's Nathan Zaia.
Surprises from Berkshire's annual meeting
05/05/2020  Morningstar's Gregg Warren discusses the meeting's cautious tone, Berkshire's lack of buying during the downturn, and unloading the airlines.
Banks will see out corona crisis
04/05/2020  Loan defaults, shaky house prices and a dividend pause - it's ugly in the short term but Nathan Zaia has long-term faith in Australia's banks.
What the pandemic means for Berkshire Hathaway
30/04/2020  Gregg Warren shares his thoughts on its valuation and more.
Netflix steals the show but for how long?
29/04/2020  What happens when the lockdown ends? The streaming giant may need to get some serious growth in international markets to make up for investor expectations. 
Unique, but normal: riding out this market crisis
27/04/2020  The markets follow patterns. We discuss ways to find your way to the upside of the current environment.
3 defensive utility stocks
23/04/2020  These utility stocks aren't the cheapest but have solid balance sheets and decent yield potential.
What in the world happened to oil prices?
22/04/2020  Amid such a painful downturn and the ensuing demand shock, it's crucial to consider companies that are in sound financial health, says Dave Meats.
'An apocalyptic asset': owning gold
21/04/2020  Gold can be a useful insurance policy for investment portfolios, says Morningstar analyst Kenneth Lamont, but it's not perfect
Energy crisis will be short-lived
20/04/2020  Will energy majors bounce back from the coronavirus-induced turmoil? You bet they will, says Mark Taylor and here are the names to watch.
What role do bonds play in an era of ultralow yields?
16/04/2020  Investors are right to be questioning bonds' role in their portfolios, but they still serve a useful purpose for many.
US tech sector now decently undervalued
14/04/2020  We examine how this sector handled the market turmoil and what to expect
Will energy stocks rise from the ashes?
09/04/2020  Investors' current concerns are justified, but vast long-term opportunities remain in this significantly undervalued sector.
Corona crisis threatens big four dividends
08/04/2020  The short-term may be scary but the major banks' long-term outlook will withstand the shock, says Morningstar's Nathan Zaia.
What to expect as the virus continues
08/04/2020  Christine Benz and Karen Andersen discuss Morningstar's latest views on stopping the spread of the virus as well as the economic implications.
In volatile markets, it's OK to chicken out
03/04/2020  Christine Benz explains why now isn't the time for grand gestures with your investments; instead, take a light touch to them.
Avoiding all eggs in the same basket
02/04/2020  Get the full effect of diversification by considering the correlation of your assets with these tips from Morningstar's Director of Investment Research, Ian Tam
Coronavirus: stock up on quality companies
01/04/2020  Retail and energy companies rank among Morningstar's sector picks, despite seeing some of the sharpest falls since coronavirus hit.
Is this 2008 all over again?
31/03/2020  Eric Jacobson explains why the banking system is not at the centre of the corona crisis, and in fact, is well positioned to be a tool to help solve it.
The critical reason to stay invested
30/03/2020  Why it's important to stay invested to capture critical months for your portfolio, with Morningstar's director of investment research, Ian Tam
How to avoid dividend cuts
27/03/2020  A wave of companies are expected to cut their dividends amid the coronavirus crisis. Morningstar's Dan Lefkovitz explains how to spot a firm that could its pay out.
Healthcare stocks still defensive, says Morningstar
26/03/2020  Respiratory specialist Fisher & Paykel Healthcare is among stocks now enticingly priced as the coronavirus hits markets and the Aussie dollar.
Cheap or nasty? Seven, Nine and Telstra
24/03/2020  A stock that’s heavily sold down isn’t always a screaming buy, as proven by this comparison of debt and other fundamentals among these well-loved companies.
Mining stocks offer price opportunity, dividend threat
20/03/2020  OZ Minerals, South32 and Iluka are among miners dipping into buy territory amid the coronavirus selloff but dividends are at risk, says Morningstar’s Mat Hodge.
Market, economic implications amid latest virus news
20/03/2020  Karen Andersen and Preston Caldwell give us their latest perspectives on healthcare and energy.
'The long-term bounceback will be strong'
17/03/2020  The coronavirus fallout is hurting but there should be a treatment by year end and the rebound will be strong, says Morningstar director of equities Johannes Faul. 
Taking control in time of corona
17/03/2020  In this timely Morningstar panel discussion, but Christine Benz and Andrew Lill provide  concrete tips on how curb your losses and put your money to use.
The importance of staying invested in volatile times
16/03/2020  Don't flee the market in a panic, but rather embrace the turmoil as an investment opportunity—you'll be better off in the long run.
‘A modest sell-off, not a panic’: Douglass on coronavirus fallout
14/03/2020  The Magellan co-founder insists now is not the time to ditch stocks for cash nor to buy bargains, and global businesses won’t turn their backs on China.
Avoid panic-selling: Douglass calls for calm
12/03/2020  Share market speculation is almost always a bad idea, and panic-selling stocks on coronavirus fears is an example of just that, warns Magellan boss.
Coronavirus and the market: our take
11/03/2020  We offer three takeaways and advice on staying true to your goals.
Hits and misses aplenty in first half 2020 - Part 2
10/03/2020  Consumer stock Breville and listed property firm Charter Hall were among the highest gainers after delivering results, while Mayne Pharma and Seven West saw the sharpest falls.
Hits and misses aplenty in first half 2020 - Part 1
09/03/2020  The interim reporting season served up a lesson in why investors shouldn't rely too heavily on company forecasts, says Morningstar's Peter Warnes
The best diversifiers for your equity portfolio
05/03/2020  Christine Benz discusses how to protect your portfolio from a stock-market sell-off.
Green bonds offer another side to ESG investing
05/03/2020  Investors are largely unaware of the role fixed income can play in expressing their views on social, environmental and governance issues.
ETF investing for the new decade: 4 trends to watch
02/03/2020  In only a decade, the value of Australia's ETF market has risen by almost 2000 per cent.
The new medical device company to watch
28/02/2020  Spray-on skin maker Avita Medical has a chance of becoming the new standard in burns treatment, says Morningstar's Nicolette Quinn. 
Helping financial advisers help investors
27/02/2020  Financial advice can deliver value but we must do a better job of showing what that is and measuring it, says Morningstar chief executive Kunal Kapoor.
'ESG is about building a portfolio for outperformance'
26/02/2020  Morningstar CEO Kunal Kapoor explains the importance of ESG investing and why it's not simply a matter of avoiding guns, smokes and booze.
Volatility is here to stay - here's what to do
25/02/2020  Morningstar's director of personal finance Christine Benz explains how investors - young and old - should navigate how the coronavirus, the US election and frothy stock prices.
Why mining dividends are a flash in the pan
24/02/2020  A near-record dividend payout from BHP reflects high iron ore prices and miners flush with cash, but these conditions won’t continue long-term, says Morningstar’s Mat Hodge.
The case for emerging market debt
20/02/2020  Lazard Asset Management's Arif Joshi demystifies emerging market debt and explains why it can offer excess yields.
Telstra faces Vodafone-TPG tie-up
18/02/2020  Morningstar equity analyst Brian Han reckons the Vodafone-TPG is a 75pc chance of proceeding but says there's a risk of overestimating its effect on Telstra.
CBA result puts dividend fears to bed, NAB on track
14/02/2020  Despite a profit dip there are many positives for CBA, including growth in mortgages and deposits and a strong balance sheet, says Morningstar equity analyst Nathan Zaia.
Doubts over James Hardie's bullish outlook
14/02/2020  The building materials supplier's long-term North American market share forecast is too ambitious, says Grant Slade 
Could Coronavirus hit China's luxury boom?
12/02/2020  Morningstar analyst Jelena Sokolova looks at the potential impact of the coronavirus on the luxury goods sector.
4 healthcare stocks attractive on valuation and ESG risk
10/02/2020  Morningstar's Karen Andersen explains how environmental, social and governance issues affect Big Pharma and biotech companies.
Coal case: why Whitehaven is a Best Idea
07/02/2020  Lower costs, higher prices, and demand from Asia: key reasons why the miner's shares are going cheap, says Morningstar director of equity research Mathew Hodge.
Two of Morningstar's Best Ideas
04/02/2020  Morningstar's Adam Fleck explains how his team decides on which names to recommend and reveals a stock that is trading at a 30 per cent discount to its fair value estimate.
Behind Morningstar's Global Best Ideas list
03/02/2020  A margin of safety and high analyst conviction are just two of the criteria behind this monthly selection of stocks for your watchlist, says Morningstar's Adam Fleck.
Morningstar's tribute to Jack Bogle
29/01/2020  There has never been anyone who has given more to investors and taken less in return than Jack Bogle.
Kraft Heinz on the comeback trail
23/01/2020  As the faltering firm works toward a turnaround, patient investors should consider its undervalued shares.
3 foodie stock picks
21/01/2020  Sarasin's Jeneiv Shah looks at three stocks across the food chain, including one company trying to stop cows from burping.
Morningstar's predictions for 2020
16/01/2020  A contraction in housing starts; advances in electric vehicle technology; Trump re-election; a rate cut; and another tough year for banks - just some of what's expected.
3 European stock picks for 2020
14/01/2020  Unloved cable companies and property firms provide some of the best opportunities in Europe, says T. Rowe Price's Dean Tenerelli. 
Best of 2019: Why Iluka is bucking the mining company trend
09/01/2020  In May 2019, Morningstar's Mat Hodge explained why this rare earths company provides a different exposure to consumer materials, and has a clear path to revenue growth.
Best of 2019: how to pick stocks like Warren Buffett
08/01/2020  In this Best of 2019 video, Morningstar director of investor education Karen Wallace reveals how Warren Buffet benefited from sniffing out companies with competitive advantages.
Best of 2019: Coles, Woolies and shareholders face tough facts
07/01/2020  In 2019, we checked in with retail analyst Johannes Faul who explained how margin pressures affected supermarket giants Woolworths and Coles, and how the market reacted.
Best of 2019 videos: Warnes' downturn warning for investors
06/01/2020  In our look back at 2019, Morningstar head of equity research Peter Warnes identifies the performers of this earning season and issues a warning to investors of what action to take as uncertainty builds.
Morningstar year in review 2019
23/12/2019  Morningstar analysts look back at a year marked by a plunge in interest rates, shocks for the banking sector, China's vast appetite for iron ore, and the Coalition's upset election win.
What lies ahead for ASX, global markets in 2020 - Part 2
19/12/2019  Tension between big business, government and the Reserve Bank will spill into the new year and Australia's banks will likely remain under pressure.
What lies ahead for ASX, global markets in 2020 - Part 1
18/12/2019  The record stock market returns of 2019 are unlikely to be repeated next year or any time soon, says Morningstar’s Peter Warnes.
3 top picks: medical tech, bank and telco
16/12/2019  US President Trump’s trade war with China is a telco tailwind for Ericsson, says Fidelity’s Amit Lodha, who also likes medical technology firm Boston Scientific and Indian bank Kotak Mahindra.
Investors hunting for 'Switzerland'
13/12/2019  Investors are scrambling for safety as geopolitical tensions fuel the hunt for investable countries and ideas, says Fidelity’s global portfolio manager Amit Lodha.
Don’t abandon stocks amid rising market risk
11/12/2019  Low interest rates and a generally gloomy investment outlook magnifies the importance of picking quality, defensive companies for your portfolio, says Investors Mutual’s Hugh Giddy.
Where in the world can stock investors find value?
06/12/2019  US stocks hold only sparse opportunities for investors but parts of emerging Asia such as Korea and Japan are attractive, says Morningstar’s Daniel Needham.
Euro small caps among Bell’s top picks
05/12/2019  Global small- and mid-cap stocks still hold appeal for this manager, including Spanish airline booking and luxury goods companies Amadeus and Moncler.
Investors too bullish on Coles and Woolies, says Morningstar
04/12/2019  Australia’s biggest supermarkets are successfully defending their turf but high profit margins are ancient history, says Morningstar’s Johannes Faul.
Staying on budget over the holidays
03/12/2019  You might overspend because of “wealth effect”, or to keep up with the Joneses, but Morningstar’s Christine Benz has some ideas on how to not go over your budget.
Nine’s Stan holds high ground in streaming battle
29/11/2019  The local content strength of Nine-owned streaming video service Stan means it should prevail even as Disney+ launches locally alongside Netflix and other invaders, says Morningstar’s Brian Han.
Earnings bright side for Westpac
28/11/2019  Westpac has endured one of the most torrid weeks in its 200-year history but there's an upside, says Morningstar banking analyst Nathan Zaia.
How to find quality at a reasonable price
28/11/2019  Bell Asset Management's chief investment officer Ned Bell explains the principles of 'QARP' investing and singles out three companies that meet the criteria.
Taking the pulse at the Morningstar Individual Investor Conference
27/11/2019  Emma Rapaport taps conference goers for their thoughts on record low interest rates, stock opportunities, diversification and the merits of active management.
Dollar cost averaging doesn't work
25/11/2019  Investing a bit at a time is a bad idea, and buying the dip is an unnecessary risk, recent Morningstar research finds.
Banks, whistleblowers and the Hayne inquiry
19/11/2019  Investigative journalist and author Adele Ferguson discusses the banking royal commission outcome and whether shareholders should have a bigger role in policing their behaviour.
Paradigm shift is coming, says Warnes
14/11/2019  Unprecedented money printing and record low rates haven't worked and a 'paradigm shift' is afoot, argues Morningstar's Peter Warnes. 
Morningstar launches its first active ETF
12/11/2019  The head of Morningstar Investment Management Australia, Matt Wacher, reveals how the new International Shares Active ETF uses a quality- and value-led strategy to find opportunities in several global and emerging markets.
Understanding Morningstar Sustainability Ratings
12/11/2019  A Morningstar Sustainability Rating for funds helps investors make comparisons across industries and better understand and manage total ESG risk in their investments.
Should the home affect Age Pension eligibility?
11/11/2019  Whether the family home should be part of the Age Pension asset test continues to stir debate in Australia as do broader issues around retirement and superannuation, explains Graham Hand.
How to sort the winners from the also-rans
08/11/2019  Forget chasing the daily vagaries of the market and focus instead on stocks that will shine in their individual sectors, says Fidelity's Kate Howitt. 
Winds are shifting in US power generation market
06/11/2019  Natural gas and renewable energy, particularly solar and wind, will battle for top spot in the power generation stakes, says Morningstar's Charles Fishman.
There’s more to running an SMSF than paperwork and penalties
04/11/2019  Complexity has long been a bugbear of SMSF trustees, for whom the administrative burden is a necessary evil, but changes are afoot to help reduce the hassle, says Vanguard’s Robin Bowerman.
Investment opportunities abound in electric vehicles
31/10/2019  Morningstar equity analyst Seth Goldstein identifies his top picks in supply chain and ancillary industries.
Hamish Douglass: China is the opportunity of the next 20 years
30/10/2019  Magellan Financial Group's chief stockpicker on how to play the political risk of a runaway China, why 'tech' is a misleading word and why the future is bright for cloud computing.
Platinum's guide to playing politics
29/10/2019  Platinum Asset Management's Andrew Clifford on how to find overlooked opportunities and why demand for cars and computers will persist despite trade war tensions.
Why you should look on the bright side
25/10/2019  AMP Capital economist Shane Oliver explains why the sweep of history favours the optimists and why confidence is the key to successful investing. 
Why the Morningstar Individual Investor Conference matters
24/10/2019  Jamie Wickham explains the aims of the Morningstar Individual Investor Conference and identifies the issues that are front of mind for investors and self-funded retirees.
I don't agree with Trump on much, except US Treasuries
23/10/2019  The days of 8 per cent yields are gone but there are bond opportunities to be found in the US and Japan, says M&G's Jim Leaviss.
Where's the recession?
11/10/2019  RBC's Eric Lascelles helps us make sense of the mixed signals in the market today.
Weighing up the Latitude IPO
09/10/2019  High leverage and exposure to lower credit quality are among the reasons why Morningstar analyst Nathan Zaia recommends investors sidestep the Latitude Financial Group float. 
3 stocks with global ambitions
03/10/2019  JPMorgan Global Growth and Income Trust manager Tim Woodhouse picks a drinks firm with a celebrity twist, a European company with global reach and a US insurance giant
History doesn't repeat, but it rhymes
01/10/2019  Lower for longer interest rates, slowing economic growth and a paucity of yield opportunities are nothing new for this seasoned professional Australian stocks investor.
Navigating the risks in credit allocation
27/09/2019  In a lower-for-longer world, understanding the liquidity risks in credit becomes even more vital, says Charlie Jamieson of JCB.