Finding Value Opportunities In EM

August 2018
Ernest Yeung , Portfolio Manager

TRADITIONAL VALUE INVESTORS USE SCREENS TO IDENTIFY ATTRACTIVELY PRICED STOCKS. WHAT SCREENS DO YOU USE?

I'm different from a lot of the traditional value managers. I do not start off with a quant screen looking at the cheapest stock in the universe because I believe in emerging markets. The debate is whether mean reversion is going to work.

 

I believe that a lot of cheap stocks in emerging markets will stay cheap for a long time, so my framework tends to start off with a more qualitative screen looking at where are the forgotten, neglected pockets of the universe, and then we move in and do homework there and choose our stock that way. Valuation is a byproduct of this process. We don't start off with valuation screen. We start off by identifying where people are not looking. 
 

HOW DO YOU GENERATE INVESTMENT IDEAS?

T. Rowe Price has one of the largest emerging market research teams in the marketplace. We have more than 30 dedicated investors looking at opportunity in emerging markets, so I'm helped by that team to generate ideas.

 

At the same time, I've been investing in emerging markets for 15 years, so I can provide a historical perspective to many of the companies through cycle, so with that combination we are never short of ideas in emerging markets. And right now in my 17 years of emerging market investment history I think I've never had a moment where I have so many actionable ideas that I could buy because the universe is actually very cheap.
 

CAN YOU GIVE US A STOCK EXAMPLE THAT ILLUSTRATES YOUR STOCK PICKING FRAMEWORK?

I do own UK-listed financial company Standard Chartered. Although it's UK-listed the majority of their business is actually in emerging markets. They're in Asia, they're in the Middle East, they're in Africa. Loan growth is very slow right now, low single digit.  However, we believe that capital expenditure, corporate lending will recover in emerging markets and a corporate lender like Standard Chartered will slowly see their revenue loan growth to return. 
 

Key Risks - The following risks are materially relevant to the strategy highlighted in this material:

 

Transactions in securities denominated in foreign currencies are subject to fluctuations in exchange rates which may affect the value of an investment. Returns can be more volatile than other, more developed, markets due to changes in market, political and economic conditions. Investments are less liquid than those which trade on more established markets. The strategy has increased risk due to its ability to employ both growth and value approaches in pursuit of long-term capital appreciation.
 

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RELATED FUND
SICAV
Class I USD
ISIN LU1244138340
Utilises a contrarian approach to invest in undervalued emerging markets companies positioned to benefit from catalysts for change.
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Fund Size
(USD)
$91.6m
FACTSHEET
PRICE POINT - IN BRIEF
POLICY INSIGHTS