A professional investor tells us where he’d put his money. This week: Austin Forey of the JPMorgan Emerging Markets Trust highlights three favourites
The JPMorgan Emerging Markets Investment Trust seeks out high-quality businesses that can grow their earnings sustainably over the long term. We have 40 analysts around the world seeking companies that create value for shareholders and where corporate governance will not undermine that value creation.
We take a medium- to long-term perspective of approximately five years, which we believe is far longer than the average investor’s; many of our picks have been part of the portfolio for over a decade. We have a bias towards companies with sustainable competitive advantages, consistent cash flow generation and strong management teams, and we want to buy them at sensible prices.
The portfolio is positioned to benefit from the secular growth in emerging-market consumption, including growing penetration of financial products in underbanked markets. Our key themes include emerging-market e-commerce – where the pace of adoption is faster than in developed markets – innovative IT software and services, and private-sector banks in India, which offer ample scope for organic growth and significant market-share gains.
A top-notch private bank
India remains a long-term structural growth story. Some of our largest positions are in high-quality private-sector Indian banks, such as HDFC Bank (NYSE: HDB), a leader in the field. The company continues to deliver operationally and take market share as quality private banks widen the performance gap with lower-quality financial institutions. Despite last year’s turbulence in the sector following the collapse of IL&FS, we remain confident in HDFC’s ability to deliver strong earnings given its stable margins, healthy asset quality, steady performance and superior management.
Burgeoning e-commerce in Latin America
The consumer remains front and centre of the emerging-market story. As of 2017, 2.1 billion internet users lived in emerging markets. By 2022, that number is likely to grow to around three billion, and three times as many internet users will live in emerging markets as in developed markets. That makes Mercadolibre (NASDAQ: MELI), an online trading site for the Latin American markets, a good pick. Mercadolibre is an e-commerce and payments company with over 200 million users across the region. As part of its expansion plans the company has raised $1bn in a heavily subscribed public offering, as well as securing a $750m direct investment from PayPal in March, which should allow it to invest more heavily in its payment business.
A dominant player in IT services
Finally, our nose for bottom-up opportunities means we also have positions in smaller markets such as Argentina. Here we hold Globant (NYSE: GLOB), an Argentine IT services business. We anticipate impressive growth for this dominant player as it continues to benefit from rising digital spending by (predominantly developed-market) companies. Despite macroeconomic uncertainty, management continues to see strong demand. The stock was further buoyed by the recently announced plans to acquire Avanxo, a leading cloud-based software company with a presence in the US and Latin America.