Each week, a professional investor tells MoneyWeek where he’d put his money now. This week: Mark Asquith, fund manager at Somerset Capital Management.
Across the developed world, governments have intervened to ‘protect’ their citizens with bail-outs and floods of taxpayer cash. Surely emerging-market economies, with their predominately left-leaning governments and frequent social strife, must be even more dependent on state protection? Not entirely.
It seems that long experience has taught their populations not to rely on their rulers. The abnormally high savings rates in India and China of 35% and 53% of GDP respectively are to provide for old age, parents, unexpected sickness and children, in countries where pensions, care homes, nationalised health or even free education are often lacking.
Whilst visiting companies in Asia last year I spent an unscheduled extra week in Thailand, trapped there by the airport occupation. When I asked my taxi driver what would happen to unemployed Thais, he said, “It’s no problem, we go back up-country and work on the farms. Thailand has good weather all year round, so no problem.” In other words, he wouldn’t die of exposure, so it would be fine.
‘The worst’ has happened before to many emerging-market citizens. As a result, they are far more prepared for hard times than we are. Most Indians have not put their money into the stockmarkets. Rather, they have put it into the gold bangles the women wear round their wrists. Capital preservation and self preservation go hand in hand. The promise of an Asian consumer utopia where the export model is substituted for domestic demand is perhaps not realistic. But if the state does start ‘protecting’ its citizens by providing the social welfare we take for granted, this could release their savings. The governments have the fiscal and monetary firepower to do this, and the consumers have the savings. And what about the corporates? It’s a similar story. Looking at the average gearing of the top 100 emerging market and developed companies, you find that the former have been more cautious than the latter, with 10% versus 40% net debt to equity. The culture of debt has not spread east. You can invest in well-run, debt-free consumer and services companies in emerging markets. These, rather than the commodity giants of today, will be the standard bearers of future indices.
Turkcell (NYSE:TKC) is Turkey’s largest mobile phone operator, with a 60% market share and 36 million subscribers. Its cash pile and spending plans should cement its leadership in tough market conditions. On a p/e of 7.5 times, it compared favourably with its global peers.
Brazilian food retailer CBD (NYSE:CBD) has been plagued by competition and mismanagement. But it now has a team who are delivering on the potential of their assets. The stores are well placed across Brazil, especially in Rio and Sao Paulo, and many are being converted into more profitable formats. Smaller rivals are being squeezed by lack of credit whilst CBD’s financing costs continue to fall. The supermarket format still has lots of room to grow in Brazil, where over half the population continues to buy from small stores.
Shanda (NYSE:SNDA) develops online games for China’s increasingly networked youth. The introduction of a new payment system rather than monthly subscriptions makes their games seem more affordable to new audiences. We expect revenue growth to continue, and net margins of 40% to be maintained.
The stocks Mark Asquith likes
| 12-month high | 12-month low | Now | |
|---|---|---|---|
| Turkcell | $23.49 | $9.51 | $11.62 |
| CBD | $50.45 | $21.26 | $27.16 |
| Shanda | $38.24 | $19.75 | $33.93 |