February 18, 2025 • 47 mins
2025 will be a critical year for China, which needs to continue stimulating demand to stave off prolonged deflationary pressure. In this episode of Inside Active, host David Cohne, mutual fund and active management analyst with Bloomberg Intelligence, along with co-host Marvin Chen, senior Asia equity strategist for Bloomberg Intelligence, spoke with Jorry Nøddekær, lead portfolio manager for the Polar Capital Emerging Market Stars Fund (POLEX) about finding economic value added that is mispriced by the market. They also discussed why identifying growth opportunities requires understanding demand and supply imbalances, why currency risk is a significant factor in emerging market investments and why investors should be cautious about relying too heavily on China.
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Episode Transcript
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Speaker 1 (00:12):
Welcome to Inside Active, a podcast about active managers that
goes beyond soundbites and headlines and looks deeper into their processes,
challenges and philosophies and security selection. I'm David Cohne, i
lead mutual fund and active research at Bloomberg Intelligence. Today
my co host is Marvin Chen, Senior Asia equity strategist
at Bloomberg Intelligence. Marvin, thanks for joining me today.
Speaker 2 (00:35):
Thanks David, great to be here.
Speaker 1 (00:37):
So you published a note yesterday on emerging market signals
for January. Can you tell us what emerging market investors
could contend with this month?
Speaker 2 (00:46):
No published was basically a recap of em performance in
twenty twenty four and what to watch out for as
we kick off twenty twenty five. So the MSCI emerging
market returned around five to six percent in twenty twenty four.
You know, this was led by Taiwan and the semiconductor demand,
but more surprisingly was that China was the second best
(01:07):
performing market last year, and this was due to a
surge at the end of the year from its stimulus blitz.
Now this year, we think it will be critical year
for China, which still needs to continue to stimulate demand
to stem off prolonged deflationary pressures for the broader em
We do think that headwinds are rising. You know, we
haven't more a less clear FED rate path and a
(01:30):
stronger dollar which may post challenges for EM fun flow,
while the US tariff policy may impact global trade. So
you know, we have Trump's inauguration inauguration later in January,
and you know we're going to see if his tariff rhetoric,
you know, turns into reality. So we think markets have
a lot to contend with in the coming months, which
(01:50):
can drive some volatility.
Speaker 1 (01:53):
Well, speaking of emerging markets, i'd like to welcome our
guests today, Zuri Notodecker, who is lead for manager of
the Polar Capital Emerging Market stars fund ticker po li X. Jerry,
welcome to Inside Active.
Speaker 3 (02:07):
Thank you very much for having me pleasure.
Speaker 1 (02:09):
So we'd like to begin by learning more about your background.
How did you get your start in the investment business.
Speaker 4 (02:15):
Well, I guess probably went all the way back to
kind of a school when you were suddenly expecting that
I planned to be an engineer. And then suddenly you
started in your history lessons to get a lot about
these kind of economic crisis and you suddenly got a
bit fascinated by this idea how politics economic could also
(02:35):
suddenly start to move something called equity market, and that
definitely triggered a bit of interest. So I definitely decided
that there's probably more for me to go to university
to study economics and finance. And then during that time
I was actually backpacking doing my bachelor and my master
degrees in Asia, you know, just post the Asian financial crisis,
(02:56):
and again that whole way society and markets and economics
was changing there.
Speaker 3 (03:02):
It was quite fascinating.
Speaker 4 (03:04):
Of course, back then I was impressed with my back
then Danish crowner how far they could get me after
a lot of currency devaluation. But it was a fascinating
development with the so called Asian Tigers economies and in
the volatility they had there. And suddenly, when I was
about to finish my master there was suddenly a smaller
Danish Poutuguez, a manager called bank in West that had
(03:24):
an analyst role for an Asian ecoity, aannalyst, and I
just felt that job has to be mine, and I
managed to get through the process and eventually managed to
get the job.
Speaker 3 (03:33):
And as I say, rest is kind of history.
Speaker 4 (03:35):
So yeah, I went relative quickly from analysts to become
a PM and running some smaller dedicated Asia funds, and yeah,
in the end I ended up running some pretty sizable
emergent market funds that I had created with my process
around nice.
Speaker 1 (03:50):
So, for the listeners not as familiar with Polar Capital,
could you give us an overview of the firm's investment philosophy.
Speaker 4 (03:59):
I guess the firm such do not have an investment philosophy.
It is a so called boutique as a manager. There
are around thirteen investment boutiques, and each boutique have a
very you could say independent investment strategy, a lot of autonomy.
Speaker 3 (04:12):
Around how they want to do it.
Speaker 4 (04:14):
I guess the glue that really puts the Polar Capital
together as a firm that is that every single of
these investment boutique they are equity managers with focus on
high alpha creating and really stock picking. So yes, again
we use EVA valuation model, somebody else will using a
DCA valuation model and so on, but generally everybody is
(04:35):
a high conviction stock pickers really focusing on trying to
be differentiated and beat the market. And I think that
is really the differentiating point there, there's no kind of
hooking the benchmark.
Speaker 3 (04:45):
Everybody is full alpha focused.
Speaker 1 (04:48):
That makes sense, and you know, the fun we're focusing
on today, the emerging market Stars fund. How do you
define star companies?
Speaker 4 (04:57):
We literally define it as companies that can sustainable create
economic value added where it's mispriced by the market to
do a firm definition there. So it's literally about finding
these companies that are really good at taking capital, really
accept there is a cost associated with capital, identify attractive
growth opportunities, then deploy their capital, and hopefully as they
(05:20):
monetize these growth opportunities that then create a strong level
of return investic capital and they get that so called
EVA spread and thereby they're really value creating companies. We
all know that EPs numbers can be highly easily kind
of manipulated and it doesn't really tell you about your
value creation. But what we really believe tell something about
your fundamental and value creation. That is literally that spread
(05:43):
you can generate on your investing capital relative to the
cost of capital.
Speaker 3 (05:47):
And you can say taking that point is that.
Speaker 4 (05:52):
We do believe over the longer term there is a
strong link between your value creation and then your total
shareholder of return.
Speaker 3 (05:59):
That you're generating.
Speaker 4 (06:00):
Because if you are a true value creating company, you
can take that excess capital you can reinvest back into
a people, technology, create IP, create brands, whatever it might be,
to further enhance your growth opportunities, and hopefully the market
will reward that. And there's no question we are growth
manager and we would expect that most of our return
to our shareholders would be coming in the form of
(06:22):
capital appreciation. But what it also means if you're value
creating companies and for some periods the market do not
believe in the management team or there are other forms
of risk measures that derail you from hitting your true
fundamental valuation, then you can do share buy bags, or
you are in a position where you can also do
dividend with some of that excess capital.
Speaker 3 (06:43):
So the point we.
Speaker 4 (06:43):
Want to make is that over the medium to the
longer term, we do believe there's a strong link between
your real economic value creating and the level of total
shareholder a term that you generate. And of course, as
as so called a long only equity manager up against
the benchmark, which clearly put some constraints you, we really
focus on this idea about finding a so called ev
eight delta, So finding that improvement in economic value added
(07:06):
we believe on mispriced by the market. That is really
the kind of alpha we try to identify. And you
can say that isn't isn't part of that service for
so called star companies is they have a strong delta
in economic value added creation.
Speaker 1 (07:20):
So we know what you're looking for. Can we dig
a little deeper into the process of you know, what
is the starting point? You know, how do you approach
looking for these companies?
Speaker 3 (07:31):
We start by defining growth.
Speaker 4 (07:33):
And you can say the way we define growth is
to say, within a given economic area, we want to
be able to identify some form of an imbalance between
the domain side and the supply side. So put very simplicity,
we can say we want some kind of steep growing
demand curve or product or given service being it underpenetrated
(07:53):
or have some kind of strong, longer lasting drive around it.
And then on the supply side, we want there to
be some form of a rigid structure such that there
are limited amount of companies that can supply into that
favorable domain environment, and thereby there's a decent chance that
these so called companies on the supply side they have
a chance to generate access return over an investment cycle
(08:16):
and then not get competed away right away. So there
need to be some form of competitive edge, some form
of uniqueness. And that's also why you can say things
where that you can call it barrass to entry or
copycat products and on, or where your capacity is very
easily added on, we do not tend to own a
(08:37):
lot of companies in that area. So again take the
classical example of telecom where it's very easily to add
capacity whenever domains come up, or some other regulated industry
where your edge is around understanding regulation, where bottom line
is you probably hardly have.
Speaker 3 (08:53):
And it's then will ever be able to gain it.
Speaker 4 (08:56):
But then we try to focus more on the likes
of you say technology like in the semiconductor space, or
you can say consumer discrestionary or indostrial or something like that.
The point being that if it's very very complex like biotech,
we'll be very frank and say we do maybe not
have the best toolbox and knowledge. I mean myself and
(09:17):
most of my analyst in the team, we come with
some kind of economic financial background. We do, of course
in Polar have people with a biotechnology background, but we
would probably be a little bit lighter to put it
easily on that side, because there's a little bit out
of our comfort zone. As to say, when it comes
to the likes of utility tile, it comes whatever. We
don't really think we cannot build an edge then be differentiated.
(09:40):
So trying to find that combination where you think you
can still be differentiated, but you with your toolbox have
a chance to be a little bit more right in
terms of direction and magnitude of these development versus the market,
and you really try to put your effort in there.
Acknowledging that finding alpha is dame heart these days, so
(10:01):
that is where we try to find our niche areas
and focused there.
Speaker 2 (10:04):
We have been kind of looking at you mentioned earnings
and growth, at earnings estimates and growth. We've kind of
been looking at consensus for this year, and you know,
we're noticing a bit of growth inflection in Latin America
and emerging Europe next year a while Asia growth still
looks to be quite high, but it looks to be slowing.
(10:25):
I'm just wondering, how are you thinking about the different
em blocks this year?
Speaker 3 (10:33):
Again, we try as a starting point where we really.
Speaker 4 (10:38):
You can say going back to the question before, I mean,
we do really kind of try to focus on these
kind of unique growth areas and then I think whether
it's it services or and then we'll say a fan
of is the best company like a globe and which
is a bit based out of Latin America, or do
we find that it service company places like India or Vietnam,
(11:02):
and then try try to to kind of understand the
dynamics there. So clearly, for a number of the areas
there is more like a global dynamics. And then of
course for the one where there is a more kind
of domestic driver, then it's more into the nitty greedy
of the domestic than it is a SOT at the
regional level, if I can put it that way, because
(11:22):
that is very much how I think the emergent market
as a class has been developing over the last decade.
That we still like to talk a little bit about
the regional blocks. And I'll be very frank and say,
even our research structure is a little bit with analysts
coming some region. But what we're also seeing there are
increasingly huge differences whether you are in Asia and whether
(11:45):
you talk India or you talk Korea. I mean the
underlying dynamics there political growth wise, society wise, they are very,
very different. And it's a bit the same with the
likes of Latin America. I mean, we have seen again
the difference between the likes of Brazil and Mexico, and
now even in Argentina suddenly also changing a lot. So
I'd probably say we are probably more when we take
(12:09):
our more top down head on, we're probably a bit
more on the countryside then we actually think about regions
with it, if I can put it that way. We
do though, also feel and I guess I'll be bad
for I say, I do not have the hard evidence here,
but my feeling is that we have over the years
(12:29):
been getting a little bit more cheated by you can say,
consensus growth numbers from cellside in Latin America. Then we
probably feel has been the case in Asia. Not saying
you cannot get cheated in Asia if you do go
and look at these numbers, but I think there's probably
a little bit more you can say, a sygnical element
(12:49):
and a little bit more swing in something like the
risk premiums that move there. So you can say from
that perspective, smaller changes you can say let's my Marria
can maybe looking slightly better than than Asia, that would
to be framed not really at an early stage kind
of be enough for us to think, oh, we really
need to reassess the structure here.
Speaker 2 (13:12):
Okay, Yeah, totally understand your your point on you know,
earning exstin is sometimes being cheated or or or not
not not as accurate as we wish. Just getting back
you mentioned you know you're more countries or you know,
country specifics matter perhaps a bit more. One one country
(13:36):
you didn't mention was China. Just wondering what are your
thoughts on China going into this year? Can you know
the domestic stimulus kind of offset the rising geo political tensions?
Speaker 4 (13:49):
There's no question. Uh, and that is what they call
a good question. And uh and and and China is
of course a very triggery one. I should mention that
we even have a small officing in Shanghai, so we
do have you can say, one of my analysts do
sit in Shanghai. So we do generally feel we have
a pretty decent understanding what's going on there. And I
(14:13):
have most of myself been investing in China for many,
many years. But there's no question in China is what
you go call between a rock and a hard place.
Right now, I think it's clear that you.
Speaker 3 (14:25):
Could call it.
Speaker 4 (14:25):
The business model for China are being a little bit
caught out on the wrong foot now, and the question
is how quickly can and will they kind of change
the dynamics the solution we see for China. It's hard
to land there, but I guess that's the only way
(14:47):
China can go. So there's no question that as we
see it, that we work a lot with us now,
which we call a new multipolar world, and it isn't
is that again, I've been doing emergent market investing for
more than twenty years and there's no secret. At least
up till two thousand and eighteen, take a gift emergent
(15:09):
market and Asian investing. It was very very China biased.
China heavy, I mean it, and you will see the
benchmark wasting. China was so heavy, and yes that was
also not only was there a lot of weight, a
lot of companies, a lot of GDP growth, but there
was also some quite amazing strong investment cases back there
(15:30):
again think Tents and Alibaba. These was kind of the
absolutely big darling names and the heavy names in the benchmark,
and that was kind of driving it. And I think
from twenty eighteen, when you could call the real kind
of trade war started to kick out, you clearly start
to see a change there. And when we talk about
a multipolar world, we think that is something that are
(15:53):
really going to accelerate over the next years and that
will really transformed the narrative for emergent market over the
coming decade. And put very simplistic, we do believe there's
a very big you would call it negative delta to
keep on using that word coming out of China in
the form of FDI are not going into China, even
Chinese own company are starting to invest outside of China,
(16:15):
manufacturing capacity are moving and so on. And of course
it's not China collapsing over night, but the direction of
travel is very clear that that dominant manufacturing role is
starting to come under pressure. And at the same time
the domestic domain picture is very very weak. But you
would say that negative delta coming out of China that
(16:36):
is not going back to US or to eurofrom that matter,
as we're see in it, we do believe that a
lot of these new manufacturing hobs, they will move to
the likes of India, Vietnam, Indonesia and Mexico and so on,
and particular in the four countries are mentioned here, but
particular the three as one. They coincide with already relative
(16:56):
favorable demographics urbanization dynamics, and we do believe that create
a pretty powerful kind of you can say, cocktail for
growth to come and be more spread out. So we
think in a way it is in many way again
we are stock piggers, and of course we are very
biased in our view, no secret there, but we think
(17:17):
actually this new multipolar world and the narrative we see
for emergent market over the next decade is actually really
really bullish because I think, let's be frank, we all
and we're probably guilty of underappreciating the political risk in
China that end up being too much capital allocated into China,
and suddenly that concentration risk, we suddenly saw the flip
(17:38):
side of that. I think in a new multipolar world, besides,
as stock piggers, we can hopefully find a lot of
great return opportunities from these new manufacturing and consumption opportunities,
but we can also spread our risks a lot better.
We can diversify them on political system, on monetary cycles,
and on investment cycle. So think if you are international
and investor, I actually think that this is it feels
(18:01):
a bit painful now when you look at the index
performance that we've been seeing the last few years. And
again I acknowledge that twenty twenty five there's a lot
of moving parts. I'll be happy to elaborate on that,
but I think if we allow ourself to keeck to
look a few years ahead, I actually think the emergent
market universe actually has a lot to offer and it
will come in a much better repping, if I can
(18:23):
use that word this time around, the way we can
diversify and spread our risk. So for that reason, I
do remain quite upbeat about the opportunities in emergent market
for this multipolar development. And as I say, we are
significant underweight in China, and I think China's a role
in this new multipolar world. And let me be very frank,
(18:44):
we are not forecast in the collapse in China anything
like that, but it's clearly you can say these deflastionary trends,
they are very strong and it could easily be some
form of a Japanization kind of version of China we're
witnessing now, though admittedly at a lot lower GDP level
capita than what we saw equivalent of Japan back in
the late eighties or early nineties. But I think the
(19:08):
future for China that is DRIMA as the exporter of
capital goods and consumer goods to you can say, the
rest of the emergent market. Yes, I think the export
growth to the likes of viewers in Europe, we should
not put our hopes too high there and if anything,
they'll probably deteriorate. But I mean it's not that long
ago since I was traveling a lot around in Asia,
(19:30):
as I do quite regular, and when you are around
in places like Southeast Asia, you are really seeing these
China products, whether it's mobile phones or its car and
they are really being adopted by the consumer there. And
I think that is really the role. And in a way,
I think that if you are producing iPhones at razor
things margin versus you are exporting your own mobile phone
(19:54):
brands where you control the IP and you get a
lot higher margin that margin, uplift can actually come say
a lot of volume deslis. So I think that I
still think that the strategy China are on it in
a kind of makes sense to try to go more
higher value added, really control the brand, and then really
try to drive export markets outside the US and Europe.
(20:18):
Will it be enough for China? And I guess that
is the big question, and I do probably believe that
it will not be fully enough. It can keep them
afloat if I can use that ext question, But you
do also need to get some form of domestic demand.
And I only really see the domestic domain story comeback
(20:38):
when you start to get some comfort back into the
Chinese society, and that goes around mister Shei and his policies,
and it's clearly also go particular in connection with that
what the China US relationship will be. As saying, if
you are a Chinese consumer and you know there is
not a big social network catching you, and you are agent,
(20:59):
and your young child that was supposed to really take
care of you when they grow up and get education
fighting with really getting a good job, then your propensity
to consume is clearly pretty low, and it will remain
so in particularly if you have a feeling that you're
about to get a trade war or other form of
of tension that can cost the job and so on.
(21:20):
So I think until we get some form of clarity
on policies, I think that the consumption will still be
pretty suppressed in China. But I definitely think again if
once you try to say what is really the task there?
In my view, it is really for the leadership in
China to get some form of really clear deal and
(21:41):
agreement with yous about the role and then you can
actually go back and start to fix your economy. I
find it hard to believe you can fix your economy
before there's some clarity on the international scene. Even China
is in many ways a big domestic economy, it is
still manufacturing heavy, and a lot of that manufacturing is
linked with the international environment, and that's why I think
(22:03):
it is quite essential that China get that part fixed
and create some kind of comfort with the outlook, and
I think that would then bring the consumer back. You
can say saving rates are unbelievable high in China at
this point, so that there is opportunity for penned up
demaind there is opportunity for structural higher level of consumption
(22:23):
versus investment level and so on. But right now you
are I guess if you are in the like the
Austrian school of economics believing in that form of economic theory.
I guess they call it the second order depression is
literally where no matter what's happened, you will just tend
to save more simply because you are uncertain about the future.
Speaker 3 (22:43):
And breaking that structure it is very hard.
Speaker 4 (22:46):
You really need to see a lot of comfort, and
I think what we are seeing right now is probably
not creating that comfort. So to your earlier point, yeah,
I think that the China consumer story, at least for
the first half still look at tough, and we will
see whether Trump's terriff threat it is and you can
say bargaining Chip or we will really go a lot
(23:09):
deep on the tension before some form of new steady.
Speaker 3 (23:11):
States kind of arrives. Of course, there's no question.
Speaker 4 (23:14):
I think we're all hopeful that it is a great
bargain and we will get a structure that can work
for for for everybody.
Speaker 3 (23:23):
But that is clearly the risk.
Speaker 2 (23:26):
Yeah, you mentioned you know the FDI and capital still
kind of flowing to the rest of emerging markets and
the rest of Asia. You mentioned India. You know, the
growth story is very compelling India. You know this year
we've been talking about China versus India, but evaluations are
(23:47):
looking a bit stretched in India at this point. Do
you think, what are you are you guys still investing
in China and looking that as a overweight or is
that going to change this year or how are you
guys looking at.
Speaker 4 (24:01):
I mean, we, uh, we're quite significantly underweight on the
on the China side, and I would expect to remain
that way. And as say, we have some really key
niss position there to your focus on on on India,
we have I'll call it decent a location. I mean
(24:21):
we are not like we have to be over underweight
and and so on, but it's a little bit more
driven by the stock picking. However, when that is said,
we do these days run with a small overweight in
in in India I ADMD. If you go a few
years back, we had a significant overweight in India and
(24:42):
again there would be something like the eight nine percent
overweight along these lines. It has come down and part
of it has also been because we have been allocating
slightly more back into technology seemiconductors and so on over
the last few years. But to your point is it's
definitely always been driven by valuation. We had a number
of cases where we have been taking our profit and
(25:04):
when we have been taking profit in some specific names
due to reaching our target price, we did find it
difficult to redeploy that capital back into India giving kind
of the valuation level. So we will absolutely acknowledging that
it is an expensive market within an EM context. However,
if you do put the engine market on a comparison
(25:26):
to like the S and P five hundred, I think
it's only Marktel more expensive and more less trading line
at least last time we did that kind of calculation.
So my point is also that you maybe have one
of the best long term growth story anywhere on the
globe in India, and you're more or less paying the
same as you're paying for the broad US market, and
(25:48):
you get structurally much higher growth, and you, if I
remember correctly, even also get slight a higher kind of
return profile. So I think in a global context, I
think you could you can justify it for sure without
any trouble at allocating capital there as you seem to
be not too different from what you're already most investors
(26:08):
are willing to pile into. As I say, yeah, in
an EM context, it is clearly a bit more on
the expensive side. But clearly, as I say, genly, I
find most management team being of high quality. They have
over significant amount of volatile cycles, be it economically, politically regulatory. Again,
a lot of them have proved they can really navigate
(26:30):
these environments and they are generally still able to generate
a relative good which on their capital. So we do
find it a structurally quite attractive margam, but no question,
we try to be very selective and for ages we
are not been owning a single you can say, classic
engine consumer company, as we simply find them way too expensive.
(26:50):
The same again, like these days, there are some amazing
small cap industrial companies, but they are unbelievable expensive, so
again we are not investing there. So it's trying to
nap on the a and find the unique stock picks
and then when you find them, kind of back them.
And at least that has been working well for us
over the last many years. But I will say that
if you take our portion of Indian companies in our
(27:13):
portfolio versus I think a lot of peers, I do
believe we are quite differentiated on quite a number of
companies we own. It in India as we do really
try to be still valuation aware when it comes to
investing in India.
Speaker 1 (27:27):
I kind of want to have a follow up to
your process a little bit you had mentioned at the beginning.
You know, very high conviction and you know if you
look at the portfolio it's between fifty and sixty securities.
I believe, how do you handle concentration risk?
Speaker 4 (27:43):
Yeah, I mean we really have a mindset that we
aim to have and of course we want to deliver
a great high absolute return. It is risky as a class.
You should be there because you can get a great return.
And I'll be the first to acknowledge that they have
been a pretty dis pointing experient in the last few years,
but we still believe you'll get it longer term. We
(28:05):
are also a long only manager and we are aware
that in ninety nine of one hundred cases with a client,
we are part of a larger as a location framework
and we are playing some form of a risk structure
we need to be aware of. So what we normally
say when it comes to that understanding about the portfolio
structure and construction, We aim for having something like an
(28:27):
informature ratio around point five to zero point six, And
you say, how do we get to that kind of
informator ratio? What is our excess return targets? What is
our kind of excess risk level? And we are aiming
to do three to four hundred basis point average excess
return and I acknowledge that we are not being able
(28:50):
to do that the last few years, but again, we
have a fourteen years track with this strategy, and if
you look at it from that perspective, we have actually
been able to deliver will in that range. So we
feel comfortable that will also be the case going forward.
And we're gearly being able to deliver that level of
every excess return over the longer term with a tracking
(29:11):
era as a measure for excess return around five to
say seven percent on an x ender level. And I
guess if you put these two together, then you roughly
get that kind of level of informature ratio. And the
point is that we think if you can deliver that
level of an informator ratio, then you are a credible
partner for a larger sl locator and you can be
that building block, which is really our ambition level that
(29:34):
we can within a decent wisk framework still deliver a
decent level of alpha there so, and sorry that was
slightly drifting a little bit on your questions to say,
how do we then handle that on consecration. Normally, what
we say that we have an active share roughly around
eighty percent, take a give and as I say, but
still able to keep that tracking era within that kind
(29:55):
of five to seven percent from an exender perspective. So
typically what we do is that we can go up
to four hundred basis point overweight a relative to the
benchmark on our highest conviction stock ideas, and we will
generally not own something where we are you can say
underweight or not as least minimum seventy five basis point.
Speaker 3 (30:14):
Oh waight.
Speaker 4 (30:15):
So there that every single position should be an active position.
That worked very well until TSMC was shooting to the
ten percent limit, where we hit a lot of blinking lights.
So TSMC as an individual stock is a little bit
problematic from that perspective, but you can say beyond that
individual case, then every single company is an active weight.
Speaker 3 (30:36):
But there's a.
Speaker 4 (30:37):
Very firm structure around what kind of weighting do you have?
And generly, the way we then decided that waiting is
as a starting point.
Speaker 3 (30:44):
It is the conviction level.
Speaker 4 (30:46):
And going back to our process, we do absolutely acknowledge
that nobody has perfect foresight and we will not claim
that other but we still believe in fundamental valuation from
the perspective that there will be a likely distribution curve
of EVA creation ow and investment title. So we try
in our evaluation work to focus a lot on that
distribution curve and then will say, the more favorable that
(31:08):
risk reward look in terms of what is the upside
versus a downside risk, the higher the conviction label we
will build up to that four hundred basis point overweight.
We will then make some adjustment for liquidity because we
still want a liquid portfolio so we can move around,
and of course we also want to provide liquidity for
our clients. And then the third pillar in that portfolio construction,
(31:29):
that is you can say microeconomic and bigger industry kind
of risk management trends. And that is precisely when you
can say cases like yeah, we can maybe find some
interesting cases in China, but we will still feel more
comfortable running a big underweight in China, and that means
we will scale some of our weighting in the China
companies a bit down to make sure we get a
(31:50):
little bit more comfortable level and again lugging cases. And
let's maybe use the example again on the likes of
India and Taiwan, where we say we are pretty bullish
and positive right now. Again we feel comfortable adding a
little bit more waiting into some of these companies to
make sure that that top down view is also to
a last degree reflected at the portfolio level, though admitting
(32:11):
that the driving factor is the sock selection, but of
course if you can have them go hand in hand,
so the stock picking will also get well reflected in
a top down view. That is, of course, what we're
really into to do, and I think we've been able.
Speaker 3 (32:22):
To do that.
Speaker 2 (32:23):
Just following on, that's kind of related to risk management.
How do you guys think about the currency risk and
you know the fed out look, a stronger dollar dollar levels,
multi year highs, how do you think this will impact
emerging market assets?
Speaker 4 (32:39):
I must admit I kind of draw the pragmatic card
here and say that if you know somebody who can
forecast councies, please give me the number. I'll like to
go in contact with them. So I think we have
gently been trying to be pretty pragmatic when it comes
to forecasting couruncies, at least in the short So again
(33:01):
we try to take that relative simplistic approach within emergent
market that if you are well sold out growing economy
and you can even drive an export sector, then the
likelord of having some stability in your currency is probably
relative high. We're on the other hand, if you have
a very weak political system, or you really have weakness
(33:21):
on your balance of payments, then we probably assume that
also massively we should factor in some depreciation on a
kind of pretty constant going basis. So we say it's
a relative simple, kind of a microeconomic approach to doing it,
and they can say, then we try to then keep
that in mind when we look at the specific companies,
and you can say, if we take some example, yes,
(33:44):
I think we have definitely also been aware that the
strong dollar was a trend, and you can say, in
many way we have been navigating around that with literally
a lot of our technology companies in Korea and Taiwan,
as their revenue line is literally or last degree in dollars,
and again their local cost base is in local you
(34:05):
can say currencies, and I think they have not really
been having that hard hit, where clearly some of the
more weaker economies we have generally been fully avoiding them.
And there's no question if you look over the last
many many years, we have had literally no exposure to
the likes of Turkey or South Africa, or been pretty
courses around Brazil and so on. So some of these
(34:27):
countries that typically have some of these structural issue we
try to be very aware about that that underlying risk.
When that is said, I do think that like most
emergent market managers, I may be software from a little
bit of a buyers and think that the dollar just
look remarkable strong and probably also too strong, and that
(34:50):
the underlying currency are extremely undervalued.
Speaker 3 (34:53):
And and if one.
Speaker 4 (34:55):
Go with the equivalent of like a let's say, a
big macindex, and I do happened to of course travel
a lot in emergent market economies, but I do also
end up traveling quite a bit in the state. And
I think if you do that as some kind of
anecdotical evidence, I mean, my god, us is expensive. I
mean you can be in some I don't want to
say something too bad, but I really let's call it
(35:17):
tier three or tier four UIs city and you're still
blown on the back of your mind. But you have
to pay for a mediocre hotel, and when you see
that what that equivalent money will give you somewhere else
in emergent market that they're.
Speaker 3 (35:29):
Just kind of out of proportion.
Speaker 4 (35:31):
So yeah, it does feel like the dollar are very
very expensive. But I do get the idea about right now.
You can call it a tina as I think some
people come up with that catchphrase there is no alternative.
I mean, let's be frank that up till this point,
US has been the only big economy where they could
demonstrate productivity, growth, safe harbor for capital where you can
(35:56):
even get a good return, and you have that safety
level in in a gayo political uncertain world. So you
can say, looking into next year, I do think fundamentally
the dollar look very strong, but I'll definitely say I'm
not building a strong thesis around that they will get
a collapse in the dollar or anything like that, So
(36:17):
I would probably have also been the point. I find
it hard to see the dollar further rerating from here on,
But again I do not see the dollar collapse more
from the point that there's literally no really alternative to
take all that that that capital. I think that again,
if I have to be a little bit political, and
I will stake out my neck, I'll say one of
the reasons that we have this kind of teen effect,
(36:39):
and there's no alternative to you, is that is you
can say, I think a lot of the dollar has
been driving by this idea that you could pile a
lot of capital into the market, and not only into
the likes of the treasury market, but also into the
equity market. And we all know the stories that even
the Switch National Bank are buying into US equities and
(36:59):
so on as this kind of way of relocating capital.
And you do that because lesbi frank it has been
the only pure capitalist market with breadth and depth over
the last long period. I think what's happening with Trump now,
I think that it's maybe too early to say that
(37:20):
it's going downhill, but we are seeing I'll say, the
first element of what you could call chrony capitalism, where
you can say the way all kind of a big
tech leaders have to show up at mar Laka and
literally donate money into a fund and so on. And
I guess if that had happened in an emergent market country,
I can assure you the headline would have been everything
(37:42):
about a corruption, bribery, uninvestible, and here in this case
in US, the money just keep piling in on the
back of that. And of course, as an emergent market manager,
I can only sit there and say this smells like
what we see when it's bad in the emergent market,
and you literally get a slap over your on that one.
But somehow US seem to be getting getting away with it.
(38:04):
But the point I want to make is that when
we start to see these development, whether we are saying
is this the beginning of chrony capitalism and so on
moving in, I think it is where you probably start
to see rich to us from a longer term perspective,
because as there's one thing that is sure, the second
you really get chrony capitalism, I think it's start to
(38:25):
impact your productivity, your return, your risk profile. And again,
don't get me wrong here, I'm not saying that US
is changing overnight or anything like that, but it's just
saying it is. In my mind again, been looking at
and investing for more than twenty years, it's probably one
of the most significant changes I have been witnessing in
(38:47):
my investment career this way. The political system in US
are changing these days, and I think there is down
the line at risk if this trend continue. And I
guess in in many ways, at least on a relative level,
some key emergent market countries again like Indians on actually
starts to look a little bit more safe on a
(39:08):
relative level versus what we're seeing in US. So hopefully
it can help drive this NARTI around a new multipolar
world that deserves some capital still early days. I absolutely
acknowledged that and hopefully we do not go down that
that that route, but it is just something that is
worth mentioning.
Speaker 2 (39:26):
Yeah, so you know, you meant you know, you mentioned
the US market. You know, tech AI has been a
key driver of the US market, but it also had
you know, lifted Taiwan over the last year, you know,
due to chip demand. But more recently, I think we're
seeing some momentum slow in the chip sector, some rotation
(39:47):
into software and AI services UH have picked up. You know,
do you do you think chip them in is still
solid going into next year or or is it kind
of time to move to the next phase of AI
album or because I think this question is you know,
kind of important for emerging markets going forward.
Speaker 4 (40:07):
Yes, I think it's a very good question, and there's
no question we have been heavily loaded over last couple
of years in technology, particularly in Taiwan, and it's just
definitely of the driver for our performance over the last
couple of years. I would say we are definitely been
(40:28):
getting more cautious on memory. So also on back of
that kind of first indication over the summer, we did
also trim some of our memory exposure down. I'll also
be very frank and say part of that reduced exposure
there was also disappointment on Samsung Electronics and their execution
skills and just generally what's going on there. So I
(40:50):
think it was not purely a memory story. There was
also there was an internal Samsung story that was making
us a bit vary, and to be frank, we've been
a little bit disappointed there. So we did take some
capital away there for sure, But I'll say where we
still believe there is a quite excitement story then, and
that's you can say even before you have the Las
(41:10):
Vegas a big event and Nvidia as a rockstar boss
suddenly saying we are now moving beyond the data center
we're going to computers and laptops and mobile devices, and
we can really spread around which by the way, should
be the pullus. And we've actually seen quite good performance
in in Asian take the last two days on these
kind of leak stories, but you can say going back
(41:34):
to you can say, pre the last two days fast,
the key story has must been on what you call EESIC.
So these application specific integrated circus where you can say
clearly this idea that if you want to run an ailgorithm,
this idea to do a bit like a chat GPT
where you literally take put very simplistic all the information
(41:55):
in the world and try.
Speaker 3 (41:56):
To run an algorithm on it.
Speaker 4 (41:57):
It is very energy intense and probably for a lot
of industrial applications on that is probably not optimal and
what you do so see a lot more of these
kind of very application specific design and we actually think
that the run rate there where it's at application devices
or you can say what goes into the data centers,
we still think there's a quite good long growth rate
(42:19):
there and we definitely see a couple of key companies
in Asia being very well positioned to.
Speaker 3 (42:26):
Deal with that.
Speaker 4 (42:27):
So you can say in a way we definitely still
feel an un selected basis that we can add a
capital there and feel that we're really buying into a
quite attractive valuation relative to the expected growth level. And
again we are still buying companies that are generating very
high returnal bastic capital and even a number of them,
even though are still in that growth mode, are still
(42:48):
able to pay out actually quite handsome dividend and they
run with a very clean balance sheet. So again in
an em context, if you kind of do like a
three dimensional structure between the turn on basic capital, sharing
that total turn capital and then also still have a
strong balance sheet, a lot of these Taiwanese companies they
are really tacking the box there and do come out
(43:09):
as some of the best allocators of capital at the
same time as they can run extreme clean balance sheet.
So that is clearly also what we are attracted to,
and we believe they can keep doing that in the
foreseable future. As I say, we still believe we're in
a pretty big structural op trend. From a technology perspective,
We still think the way the world will look like
(43:30):
five years from now in terms of aidops in data center,
faster connectivity, etc. There is a long runway there, and
we do actually this time around, we're not claiming for
a second that you still not have some of the
leading companies in the form of the likes of Nvidia
or the software side, the big kind of the superscalar
(43:51):
companies in US. But when it comes to that IC
design manufacturing side, a key component side, this time around,
we actually believe that a number of these Asian companies
actually have a very key role to play and they
are clearly shifting to that you can say you as
supply chain side, and we think it will give them
(44:12):
a very good lift in the years to come. So
for that reason, we do actually remain quity upbeat going
into twenty twenty five, and we acknowledge that maybe first
half is a little bit on the soft side, at
least for a few selected names, but we are probably
already now seeing that the second half should be pretty
(44:32):
pretty okay and going into twenty twenty six. The interesting
thing about some of this ESSEIC or some of these
design project is that you actually have some form of
visibility because you can say the manufacturing capacity with the
likes of TSMC, in particular their cod capacity for advanced
packaging that is very very tight, so you literally need
(44:55):
to book your capacity way ahead. And again we've seen
the likes of of Amazon literally already having booked a
project with al Chip for their data center chips with
the YEA I have tape out in twenty twenty six,
so we do actually have some pretty decent visibility for
a number of companies. So when we look the next
(45:15):
two years ahead, we actually think that not saying we
cannot get a little bit of disappointment quarter here and there,
but we think the structural trend is actually pretty compelling
and giving. We had quite a bit sell off in
takeover the summer, and I think it was also one
of the months here in the later half of the
year we also saw a bit of weakness. Valuation level
(45:37):
still pretty pretty fair and attractive, so it's not like
this is super high valuation. So I still think that
valuation versus growth is pretty compelling, for particular the Taiwanese cases.
Korea is also very very cheap, but I guess the
issue of course with Korea is you are often getting
(46:00):
a bit cheated by that. You can say that the
sechnicality in the market that is for memory or is
some of the equipment makers, and they are not totally
a bit more signical. And then of course you have
to bear the governance risk, and of course lately we
could even add the political risk. Even when that is said,
I think that in a way and in a rational way,
(46:21):
the TIC sector has not been reacting particular as significant
to all the political noise in Korea, which I actually
also think is correct. I think that there will not
be big changes in their outlog or operational environment, giving
what's happening on the political scene. But yeah, of course
on the margin, is not helpful that you have all
(46:42):
this noise going on in Korea.
Speaker 1 (46:45):
Well, this is great. We are unfortunately running out of time.
But Jerry, thank you so much for joining us today.
Speaker 3 (46:51):
Thank you very much for having me.
Speaker 1 (46:54):
And Marvin, thank you for being my ghost today.
Speaker 2 (46:57):
Thank you, thank you, Jory.
Speaker 1 (46:59):
Until our next SEP episode, This is David Khane with
Inside Active
Welcome to Inside Active, a podcast about active managers that
goes beyond soundbites and headlines and looks deeper into their processes,
challenges and philosophies and security selection. I'm David Cohne, i
lead mutual fund and active research at Bloomberg Intelligence. Today
my co host is Marvin Chen, Senior Asia equity strategist
at Bloomberg Intelligence. Marvin, thanks for joining me today.
Speaker 2 (00:35):
Thanks David, great to be here.
Speaker 1 (00:37):
So you published a note yesterday on emerging market signals
for January. Can you tell us what emerging market investors
could contend with this month?
Speaker 2 (00:46):
No published was basically a recap of em performance in
twenty twenty four and what to watch out for as
we kick off twenty twenty five. So the MSCI emerging
market returned around five to six percent in twenty twenty four.
You know, this was led by Taiwan and the semiconductor demand,
but more surprisingly was that China was the second best
(01:07):
performing market last year, and this was due to a
surge at the end of the year from its stimulus blitz.
Now this year, we think it will be critical year
for China, which still needs to continue to stimulate demand
to stem off prolonged deflationary pressures for the broader em
We do think that headwinds are rising. You know, we
haven't more a less clear FED rate path and a
(01:30):
stronger dollar which may post challenges for EM fun flow,
while the US tariff policy may impact global trade. So
you know, we have Trump's inauguration inauguration later in January,
and you know we're going to see if his tariff rhetoric,
you know, turns into reality. So we think markets have
a lot to contend with in the coming months, which
(01:50):
can drive some volatility.
Speaker 1 (01:53):
Well, speaking of emerging markets, i'd like to welcome our
guests today, Zuri Notodecker, who is lead for manager of
the Polar Capital Emerging Market stars fund ticker po li X. Jerry,
welcome to Inside Active.
Speaker 3 (02:07):
Thank you very much for having me pleasure.
Speaker 1 (02:09):
So we'd like to begin by learning more about your background.
How did you get your start in the investment business.
Speaker 4 (02:15):
Well, I guess probably went all the way back to
kind of a school when you were suddenly expecting that
I planned to be an engineer. And then suddenly you
started in your history lessons to get a lot about
these kind of economic crisis and you suddenly got a
bit fascinated by this idea how politics economic could also
(02:35):
suddenly start to move something called equity market, and that
definitely triggered a bit of interest. So I definitely decided
that there's probably more for me to go to university
to study economics and finance. And then during that time
I was actually backpacking doing my bachelor and my master
degrees in Asia, you know, just post the Asian financial crisis,
(02:56):
and again that whole way society and markets and economics
was changing there.
Speaker 3 (03:02):
It was quite fascinating.
Speaker 4 (03:04):
Of course, back then I was impressed with my back
then Danish crowner how far they could get me after
a lot of currency devaluation. But it was a fascinating
development with the so called Asian Tigers economies and in
the volatility they had there. And suddenly, when I was
about to finish my master there was suddenly a smaller
Danish Poutuguez, a manager called bank in West that had
(03:24):
an analyst role for an Asian ecoity, aannalyst, and I
just felt that job has to be mine, and I
managed to get through the process and eventually managed to
get the job.
Speaker 3 (03:33):
And as I say, rest is kind of history.
Speaker 4 (03:35):
So yeah, I went relative quickly from analysts to become
a PM and running some smaller dedicated Asia funds, and yeah,
in the end I ended up running some pretty sizable
emergent market funds that I had created with my process
around nice.
Speaker 1 (03:50):
So, for the listeners not as familiar with Polar Capital,
could you give us an overview of the firm's investment philosophy.
Speaker 4 (03:59):
I guess the firm such do not have an investment philosophy.
It is a so called boutique as a manager. There
are around thirteen investment boutiques, and each boutique have a
very you could say independent investment strategy, a lot of autonomy.
Speaker 3 (04:12):
Around how they want to do it.
Speaker 4 (04:14):
I guess the glue that really puts the Polar Capital
together as a firm that is that every single of
these investment boutique they are equity managers with focus on
high alpha creating and really stock picking. So yes, again
we use EVA valuation model, somebody else will using a
DCA valuation model and so on, but generally everybody is
(04:35):
a high conviction stock pickers really focusing on trying to
be differentiated and beat the market. And I think that
is really the differentiating point there, there's no kind of
hooking the benchmark.
Speaker 3 (04:45):
Everybody is full alpha focused.
Speaker 1 (04:48):
That makes sense, and you know, the fun we're focusing
on today, the emerging market Stars fund. How do you
define star companies?
Speaker 4 (04:57):
We literally define it as companies that can sustainable create
economic value added where it's mispriced by the market to
do a firm definition there. So it's literally about finding
these companies that are really good at taking capital, really
accept there is a cost associated with capital, identify attractive
growth opportunities, then deploy their capital, and hopefully as they
(05:20):
monetize these growth opportunities that then create a strong level
of return investic capital and they get that so called
EVA spread and thereby they're really value creating companies. We
all know that EPs numbers can be highly easily kind
of manipulated and it doesn't really tell you about your
value creation. But what we really believe tell something about
your fundamental and value creation. That is literally that spread
(05:43):
you can generate on your investing capital relative to the
cost of capital.
Speaker 3 (05:47):
And you can say taking that point is that.
Speaker 4 (05:52):
We do believe over the longer term there is a
strong link between your value creation and then your total
shareholder of return.
Speaker 3 (05:59):
That you're generating.
Speaker 4 (06:00):
Because if you are a true value creating company, you
can take that excess capital you can reinvest back into
a people, technology, create IP, create brands, whatever it might be,
to further enhance your growth opportunities, and hopefully the market
will reward that. And there's no question we are growth
manager and we would expect that most of our return
to our shareholders would be coming in the form of
(06:22):
capital appreciation. But what it also means if you're value
creating companies and for some periods the market do not
believe in the management team or there are other forms
of risk measures that derail you from hitting your true
fundamental valuation, then you can do share buy bags, or
you are in a position where you can also do
dividend with some of that excess capital.
Speaker 3 (06:43):
So the point we.
Speaker 4 (06:43):
Want to make is that over the medium to the
longer term, we do believe there's a strong link between
your real economic value creating and the level of total
shareholder a term that you generate. And of course, as
as so called a long only equity manager up against
the benchmark, which clearly put some constraints you, we really
focus on this idea about finding a so called ev
eight delta, So finding that improvement in economic value added
(07:06):
we believe on mispriced by the market. That is really
the kind of alpha we try to identify. And you
can say that isn't isn't part of that service for
so called star companies is they have a strong delta
in economic value added creation.
Speaker 1 (07:20):
So we know what you're looking for. Can we dig
a little deeper into the process of you know, what
is the starting point? You know, how do you approach
looking for these companies?
Speaker 3 (07:31):
We start by defining growth.
Speaker 4 (07:33):
And you can say the way we define growth is
to say, within a given economic area, we want to
be able to identify some form of an imbalance between
the domain side and the supply side. So put very simplicity,
we can say we want some kind of steep growing
demand curve or product or given service being it underpenetrated
(07:53):
or have some kind of strong, longer lasting drive around it.
And then on the supply side, we want there to
be some form of a rigid structure such that there
are limited amount of companies that can supply into that
favorable domain environment, and thereby there's a decent chance that
these so called companies on the supply side they have
a chance to generate access return over an investment cycle
(08:16):
and then not get competed away right away. So there
need to be some form of competitive edge, some form
of uniqueness. And that's also why you can say things
where that you can call it barrass to entry or
copycat products and on, or where your capacity is very
easily added on, we do not tend to own a
(08:37):
lot of companies in that area. So again take the
classical example of telecom where it's very easily to add
capacity whenever domains come up, or some other regulated industry
where your edge is around understanding regulation, where bottom line
is you probably hardly have.
Speaker 3 (08:53):
And it's then will ever be able to gain it.
Speaker 4 (08:56):
But then we try to focus more on the likes
of you say technology like in the semiconductor space, or
you can say consumer discrestionary or indostrial or something like that.
The point being that if it's very very complex like biotech,
we'll be very frank and say we do maybe not
have the best toolbox and knowledge. I mean myself and
(09:17):
most of my analyst in the team, we come with
some kind of economic financial background. We do, of course
in Polar have people with a biotechnology background, but we
would probably be a little bit lighter to put it
easily on that side, because there's a little bit out
of our comfort zone. As to say, when it comes
to the likes of utility tile, it comes whatever. We
don't really think we cannot build an edge then be differentiated.
(09:40):
So trying to find that combination where you think you
can still be differentiated, but you with your toolbox have
a chance to be a little bit more right in
terms of direction and magnitude of these development versus the market,
and you really try to put your effort in there.
Acknowledging that finding alpha is dame heart these days, so
(10:01):
that is where we try to find our niche areas
and focused there.
Speaker 2 (10:04):
We have been kind of looking at you mentioned earnings
and growth, at earnings estimates and growth. We've kind of
been looking at consensus for this year, and you know,
we're noticing a bit of growth inflection in Latin America
and emerging Europe next year a while Asia growth still
looks to be quite high, but it looks to be slowing.
(10:25):
I'm just wondering, how are you thinking about the different
em blocks this year?
Speaker 3 (10:33):
Again, we try as a starting point where we really.
Speaker 4 (10:38):
You can say going back to the question before, I mean,
we do really kind of try to focus on these
kind of unique growth areas and then I think whether
it's it services or and then we'll say a fan
of is the best company like a globe and which
is a bit based out of Latin America, or do
we find that it service company places like India or Vietnam,
(11:02):
and then try try to to kind of understand the
dynamics there. So clearly, for a number of the areas
there is more like a global dynamics. And then of
course for the one where there is a more kind
of domestic driver, then it's more into the nitty greedy
of the domestic than it is a SOT at the
regional level, if I can put it that way, because
(11:22):
that is very much how I think the emergent market
as a class has been developing over the last decade.
That we still like to talk a little bit about
the regional blocks. And I'll be very frank and say,
even our research structure is a little bit with analysts
coming some region. But what we're also seeing there are
increasingly huge differences whether you are in Asia and whether
(11:45):
you talk India or you talk Korea. I mean the
underlying dynamics there political growth wise, society wise, they are very,
very different. And it's a bit the same with the
likes of Latin America. I mean, we have seen again
the difference between the likes of Brazil and Mexico, and
now even in Argentina suddenly also changing a lot. So
I'd probably say we are probably more when we take
(12:09):
our more top down head on, we're probably a bit
more on the countryside then we actually think about regions
with it, if I can put it that way. We
do though, also feel and I guess I'll be bad
for I say, I do not have the hard evidence here,
but my feeling is that we have over the years
(12:29):
been getting a little bit more cheated by you can say,
consensus growth numbers from cellside in Latin America. Then we
probably feel has been the case in Asia. Not saying
you cannot get cheated in Asia if you do go
and look at these numbers, but I think there's probably
a little bit more you can say, a sygnical element
(12:49):
and a little bit more swing in something like the
risk premiums that move there. So you can say from
that perspective, smaller changes you can say let's my Marria
can maybe looking slightly better than than Asia, that would
to be framed not really at an early stage kind
of be enough for us to think, oh, we really
need to reassess the structure here.
Speaker 2 (13:12):
Okay, Yeah, totally understand your your point on you know,
earning exstin is sometimes being cheated or or or not
not not as accurate as we wish. Just getting back
you mentioned you know you're more countries or you know,
country specifics matter perhaps a bit more. One one country
(13:36):
you didn't mention was China. Just wondering what are your
thoughts on China going into this year? Can you know
the domestic stimulus kind of offset the rising geo political tensions?
Speaker 4 (13:49):
There's no question. Uh, and that is what they call
a good question. And uh and and and China is
of course a very triggery one. I should mention that
we even have a small officing in Shanghai, so we
do have you can say, one of my analysts do
sit in Shanghai. So we do generally feel we have
a pretty decent understanding what's going on there. And I
(14:13):
have most of myself been investing in China for many,
many years. But there's no question in China is what
you go call between a rock and a hard place.
Right now, I think it's clear that you.
Speaker 3 (14:25):
Could call it.
Speaker 4 (14:25):
The business model for China are being a little bit
caught out on the wrong foot now, and the question
is how quickly can and will they kind of change
the dynamics the solution we see for China. It's hard
to land there, but I guess that's the only way
(14:47):
China can go. So there's no question that as we
see it, that we work a lot with us now,
which we call a new multipolar world, and it isn't
is that again, I've been doing emergent market investing for
more than twenty years and there's no secret. At least
up till two thousand and eighteen, take a gift emergent
(15:09):
market and Asian investing. It was very very China biased.
China heavy, I mean it, and you will see the
benchmark wasting. China was so heavy, and yes that was
also not only was there a lot of weight, a
lot of companies, a lot of GDP growth, but there
was also some quite amazing strong investment cases back there
(15:30):
again think Tents and Alibaba. These was kind of the
absolutely big darling names and the heavy names in the benchmark,
and that was kind of driving it. And I think
from twenty eighteen, when you could call the real kind
of trade war started to kick out, you clearly start
to see a change there. And when we talk about
a multipolar world, we think that is something that are
(15:53):
really going to accelerate over the next years and that
will really transformed the narrative for emergent market over the
coming decade. And put very simplistic, we do believe there's
a very big you would call it negative delta to
keep on using that word coming out of China in
the form of FDI are not going into China, even
Chinese own company are starting to invest outside of China,
(16:15):
manufacturing capacity are moving and so on. And of course
it's not China collapsing over night, but the direction of
travel is very clear that that dominant manufacturing role is
starting to come under pressure. And at the same time
the domestic domain picture is very very weak. But you
would say that negative delta coming out of China that
(16:36):
is not going back to US or to eurofrom that matter,
as we're see in it, we do believe that a
lot of these new manufacturing hobs, they will move to
the likes of India, Vietnam, Indonesia and Mexico and so on,
and particular in the four countries are mentioned here, but
particular the three as one. They coincide with already relative
(16:56):
favorable demographics urbanization dynamics, and we do believe that create
a pretty powerful kind of you can say, cocktail for
growth to come and be more spread out. So we
think in a way it is in many way again
we are stock piggers, and of course we are very
biased in our view, no secret there, but we think
(17:17):
actually this new multipolar world and the narrative we see
for emergent market over the next decade is actually really
really bullish because I think, let's be frank, we all
and we're probably guilty of underappreciating the political risk in
China that end up being too much capital allocated into China,
and suddenly that concentration risk, we suddenly saw the flip
(17:38):
side of that. I think in a new multipolar world, besides,
as stock piggers, we can hopefully find a lot of
great return opportunities from these new manufacturing and consumption opportunities,
but we can also spread our risks a lot better.
We can diversify them on political system, on monetary cycles,
and on investment cycle. So think if you are international
and investor, I actually think that this is it feels
(18:01):
a bit painful now when you look at the index
performance that we've been seeing the last few years. And
again I acknowledge that twenty twenty five there's a lot
of moving parts. I'll be happy to elaborate on that,
but I think if we allow ourself to keeck to
look a few years ahead, I actually think the emergent
market universe actually has a lot to offer and it
will come in a much better repping, if I can
(18:23):
use that word this time around, the way we can
diversify and spread our risk. So for that reason, I
do remain quite upbeat about the opportunities in emergent market
for this multipolar development. And as I say, we are
significant underweight in China, and I think China's a role
in this new multipolar world. And let me be very frank,
(18:44):
we are not forecast in the collapse in China anything
like that, but it's clearly you can say these deflastionary trends,
they are very strong and it could easily be some
form of a Japanization kind of version of China we're
witnessing now, though admittedly at a lot lower GDP level
capita than what we saw equivalent of Japan back in
the late eighties or early nineties. But I think the
(19:08):
future for China that is DRIMA as the exporter of
capital goods and consumer goods to you can say, the
rest of the emergent market. Yes, I think the export
growth to the likes of viewers in Europe, we should
not put our hopes too high there and if anything,
they'll probably deteriorate. But I mean it's not that long
ago since I was traveling a lot around in Asia,
(19:30):
as I do quite regular, and when you are around
in places like Southeast Asia, you are really seeing these
China products, whether it's mobile phones or its car and
they are really being adopted by the consumer there. And
I think that is really the role. And in a way,
I think that if you are producing iPhones at razor
things margin versus you are exporting your own mobile phone
(19:54):
brands where you control the IP and you get a
lot higher margin that margin, uplift can actually come say
a lot of volume deslis. So I think that I
still think that the strategy China are on it in
a kind of makes sense to try to go more
higher value added, really control the brand, and then really
try to drive export markets outside the US and Europe.
(20:18):
Will it be enough for China? And I guess that
is the big question, and I do probably believe that
it will not be fully enough. It can keep them
afloat if I can use that ext question, But you
do also need to get some form of domestic demand.
And I only really see the domestic domain story comeback
(20:38):
when you start to get some comfort back into the
Chinese society, and that goes around mister Shei and his policies,
and it's clearly also go particular in connection with that
what the China US relationship will be. As saying, if
you are a Chinese consumer and you know there is
not a big social network catching you, and you are agent,
(20:59):
and your young child that was supposed to really take
care of you when they grow up and get education
fighting with really getting a good job, then your propensity
to consume is clearly pretty low, and it will remain
so in particularly if you have a feeling that you're
about to get a trade war or other form of
of tension that can cost the job and so on.
(21:20):
So I think until we get some form of clarity
on policies, I think that the consumption will still be
pretty suppressed in China. But I definitely think again if
once you try to say what is really the task there?
In my view, it is really for the leadership in
China to get some form of really clear deal and
(21:41):
agreement with yous about the role and then you can
actually go back and start to fix your economy. I
find it hard to believe you can fix your economy
before there's some clarity on the international scene. Even China
is in many ways a big domestic economy, it is
still manufacturing heavy, and a lot of that manufacturing is
linked with the international environment, and that's why I think
(22:03):
it is quite essential that China get that part fixed
and create some kind of comfort with the outlook, and
I think that would then bring the consumer back. You
can say saving rates are unbelievable high in China at
this point, so that there is opportunity for penned up
demaind there is opportunity for structural higher level of consumption
(22:23):
versus investment level and so on. But right now you
are I guess if you are in the like the
Austrian school of economics believing in that form of economic theory.
I guess they call it the second order depression is
literally where no matter what's happened, you will just tend
to save more simply because you are uncertain about the future.
Speaker 3 (22:43):
And breaking that structure it is very hard.
Speaker 4 (22:46):
You really need to see a lot of comfort, and
I think what we are seeing right now is probably
not creating that comfort. So to your earlier point, yeah,
I think that the China consumer story, at least for
the first half still look at tough, and we will
see whether Trump's terriff threat it is and you can
say bargaining Chip or we will really go a lot
(23:09):
deep on the tension before some form of new steady.
Speaker 3 (23:11):
States kind of arrives. Of course, there's no question.
Speaker 4 (23:14):
I think we're all hopeful that it is a great
bargain and we will get a structure that can work
for for for everybody.
Speaker 3 (23:23):
But that is clearly the risk.
Speaker 2 (23:26):
Yeah, you mentioned you know the FDI and capital still
kind of flowing to the rest of emerging markets and
the rest of Asia. You mentioned India. You know, the
growth story is very compelling India. You know this year
we've been talking about China versus India, but evaluations are
(23:47):
looking a bit stretched in India at this point. Do
you think, what are you are you guys still investing
in China and looking that as a overweight or is
that going to change this year or how are you
guys looking at.
Speaker 4 (24:01):
I mean, we, uh, we're quite significantly underweight on the
on the China side, and I would expect to remain
that way. And as say, we have some really key
niss position there to your focus on on on India,
we have I'll call it decent a location. I mean
(24:21):
we are not like we have to be over underweight
and and so on, but it's a little bit more
driven by the stock picking. However, when that is said,
we do these days run with a small overweight in
in in India I ADMD. If you go a few
years back, we had a significant overweight in India and
(24:42):
again there would be something like the eight nine percent
overweight along these lines. It has come down and part
of it has also been because we have been allocating
slightly more back into technology seemiconductors and so on over
the last few years. But to your point is it's
definitely always been driven by valuation. We had a number
of cases where we have been taking our profit and
(25:04):
when we have been taking profit in some specific names
due to reaching our target price, we did find it
difficult to redeploy that capital back into India giving kind
of the valuation level. So we will absolutely acknowledging that
it is an expensive market within an EM context. However,
if you do put the engine market on a comparison
(25:26):
to like the S and P five hundred, I think
it's only Marktel more expensive and more less trading line
at least last time we did that kind of calculation.
So my point is also that you maybe have one
of the best long term growth story anywhere on the
globe in India, and you're more or less paying the
same as you're paying for the broad US market, and
(25:48):
you get structurally much higher growth, and you, if I
remember correctly, even also get slight a higher kind of
return profile. So I think in a global context, I
think you could you can justify it for sure without
any trouble at allocating capital there as you seem to
be not too different from what you're already most investors
(26:08):
are willing to pile into. As I say, yeah, in
an EM context, it is clearly a bit more on
the expensive side. But clearly, as I say, genly, I
find most management team being of high quality. They have
over significant amount of volatile cycles, be it economically, politically regulatory. Again,
a lot of them have proved they can really navigate
(26:30):
these environments and they are generally still able to generate
a relative good which on their capital. So we do
find it a structurally quite attractive margam, but no question,
we try to be very selective and for ages we
are not been owning a single you can say, classic
engine consumer company, as we simply find them way too expensive.
(26:50):
The same again, like these days, there are some amazing
small cap industrial companies, but they are unbelievable expensive, so
again we are not investing there. So it's trying to
nap on the a and find the unique stock picks
and then when you find them, kind of back them.
And at least that has been working well for us
over the last many years. But I will say that
if you take our portion of Indian companies in our
(27:13):
portfolio versus I think a lot of peers, I do
believe we are quite differentiated on quite a number of
companies we own. It in India as we do really
try to be still valuation aware when it comes to
investing in India.
Speaker 1 (27:27):
I kind of want to have a follow up to
your process a little bit you had mentioned at the beginning.
You know, very high conviction and you know if you
look at the portfolio it's between fifty and sixty securities.
I believe, how do you handle concentration risk?
Speaker 4 (27:43):
Yeah, I mean we really have a mindset that we
aim to have and of course we want to deliver
a great high absolute return. It is risky as a class.
You should be there because you can get a great return.
And I'll be the first to acknowledge that they have
been a pretty dis pointing experient in the last few years,
but we still believe you'll get it longer term. We
(28:05):
are also a long only manager and we are aware
that in ninety nine of one hundred cases with a client,
we are part of a larger as a location framework
and we are playing some form of a risk structure
we need to be aware of. So what we normally
say when it comes to that understanding about the portfolio
structure and construction, We aim for having something like an
(28:27):
informature ratio around point five to zero point six, And
you say, how do we get to that kind of
informator ratio? What is our excess return targets? What is
our kind of excess risk level? And we are aiming
to do three to four hundred basis point average excess
return and I acknowledge that we are not being able
(28:50):
to do that the last few years, but again, we
have a fourteen years track with this strategy, and if
you look at it from that perspective, we have actually
been able to deliver will in that range. So we
feel comfortable that will also be the case going forward.
And we're gearly being able to deliver that level of
every excess return over the longer term with a tracking
(29:11):
era as a measure for excess return around five to
say seven percent on an x ender level. And I
guess if you put these two together, then you roughly
get that kind of level of informature ratio. And the
point is that we think if you can deliver that
level of an informator ratio, then you are a credible
partner for a larger sl locator and you can be
that building block, which is really our ambition level that
(29:34):
we can within a decent wisk framework still deliver a
decent level of alpha there so, and sorry that was
slightly drifting a little bit on your questions to say,
how do we then handle that on consecration. Normally, what
we say that we have an active share roughly around
eighty percent, take a give and as I say, but
still able to keep that tracking era within that kind
(29:55):
of five to seven percent from an exender perspective. So
typically what we do is that we can go up
to four hundred basis point overweight a relative to the
benchmark on our highest conviction stock ideas, and we will
generally not own something where we are you can say
underweight or not as least minimum seventy five basis point.
Speaker 3 (30:14):
Oh waight.
Speaker 4 (30:15):
So there that every single position should be an active position.
That worked very well until TSMC was shooting to the
ten percent limit, where we hit a lot of blinking lights.
So TSMC as an individual stock is a little bit
problematic from that perspective, but you can say beyond that
individual case, then every single company is an active weight.
Speaker 3 (30:36):
But there's a.
Speaker 4 (30:37):
Very firm structure around what kind of weighting do you have?
And generly, the way we then decided that waiting is
as a starting point.
Speaker 3 (30:44):
It is the conviction level.
Speaker 4 (30:46):
And going back to our process, we do absolutely acknowledge
that nobody has perfect foresight and we will not claim
that other but we still believe in fundamental valuation from
the perspective that there will be a likely distribution curve
of EVA creation ow and investment title. So we try
in our evaluation work to focus a lot on that
distribution curve and then will say, the more favorable that
(31:08):
risk reward look in terms of what is the upside
versus a downside risk, the higher the conviction label we
will build up to that four hundred basis point overweight.
We will then make some adjustment for liquidity because we
still want a liquid portfolio so we can move around,
and of course we also want to provide liquidity for
our clients. And then the third pillar in that portfolio construction,
(31:29):
that is you can say microeconomic and bigger industry kind
of risk management trends. And that is precisely when you
can say cases like yeah, we can maybe find some
interesting cases in China, but we will still feel more
comfortable running a big underweight in China, and that means
we will scale some of our weighting in the China
companies a bit down to make sure we get a
(31:50):
little bit more comfortable level and again lugging cases. And
let's maybe use the example again on the likes of
India and Taiwan, where we say we are pretty bullish
and positive right now. Again we feel comfortable adding a
little bit more waiting into some of these companies to
make sure that that top down view is also to
a last degree reflected at the portfolio level, though admitting
(32:11):
that the driving factor is the sock selection, but of
course if you can have them go hand in hand,
so the stock picking will also get well reflected in
a top down view. That is, of course, what we're
really into to do, and I think we've been able.
Speaker 3 (32:22):
To do that.
Speaker 2 (32:23):
Just following on, that's kind of related to risk management.
How do you guys think about the currency risk and
you know the fed out look, a stronger dollar dollar levels,
multi year highs, how do you think this will impact
emerging market assets?
Speaker 4 (32:39):
I must admit I kind of draw the pragmatic card
here and say that if you know somebody who can
forecast councies, please give me the number. I'll like to
go in contact with them. So I think we have
gently been trying to be pretty pragmatic when it comes
to forecasting couruncies, at least in the short So again
(33:01):
we try to take that relative simplistic approach within emergent
market that if you are well sold out growing economy
and you can even drive an export sector, then the
likelord of having some stability in your currency is probably
relative high. We're on the other hand, if you have
a very weak political system, or you really have weakness
(33:21):
on your balance of payments, then we probably assume that
also massively we should factor in some depreciation on a
kind of pretty constant going basis. So we say it's
a relative simple, kind of a microeconomic approach to doing it,
and they can say, then we try to then keep
that in mind when we look at the specific companies,
and you can say, if we take some example, yes,
(33:44):
I think we have definitely also been aware that the
strong dollar was a trend, and you can say, in
many way we have been navigating around that with literally
a lot of our technology companies in Korea and Taiwan,
as their revenue line is literally or last degree in dollars,
and again their local cost base is in local you
(34:05):
can say currencies, and I think they have not really
been having that hard hit, where clearly some of the
more weaker economies we have generally been fully avoiding them.
And there's no question if you look over the last
many many years, we have had literally no exposure to
the likes of Turkey or South Africa, or been pretty
courses around Brazil and so on. So some of these
(34:27):
countries that typically have some of these structural issue we
try to be very aware about that that underlying risk.
When that is said, I do think that like most
emergent market managers, I may be software from a little
bit of a buyers and think that the dollar just
look remarkable strong and probably also too strong, and that
(34:50):
the underlying currency are extremely undervalued.
Speaker 3 (34:53):
And and if one.
Speaker 4 (34:55):
Go with the equivalent of like a let's say, a
big macindex, and I do happened to of course travel
a lot in emergent market economies, but I do also
end up traveling quite a bit in the state. And
I think if you do that as some kind of
anecdotical evidence, I mean, my god, us is expensive. I
mean you can be in some I don't want to
say something too bad, but I really let's call it
(35:17):
tier three or tier four UIs city and you're still
blown on the back of your mind. But you have
to pay for a mediocre hotel, and when you see
that what that equivalent money will give you somewhere else
in emergent market that they're.
Speaker 3 (35:29):
Just kind of out of proportion.
Speaker 4 (35:31):
So yeah, it does feel like the dollar are very
very expensive. But I do get the idea about right now.
You can call it a tina as I think some
people come up with that catchphrase there is no alternative.
I mean, let's be frank that up till this point,
US has been the only big economy where they could
demonstrate productivity, growth, safe harbor for capital where you can
(35:56):
even get a good return, and you have that safety
level in in a gayo political uncertain world. So you
can say, looking into next year, I do think fundamentally
the dollar look very strong, but I'll definitely say I'm
not building a strong thesis around that they will get
a collapse in the dollar or anything like that, So
(36:17):
I would probably have also been the point. I find
it hard to see the dollar further rerating from here on,
But again I do not see the dollar collapse more
from the point that there's literally no really alternative to
take all that that that capital. I think that again,
if I have to be a little bit political, and
I will stake out my neck, I'll say one of
the reasons that we have this kind of teen effect,
(36:39):
and there's no alternative to you, is that is you
can say, I think a lot of the dollar has
been driving by this idea that you could pile a
lot of capital into the market, and not only into
the likes of the treasury market, but also into the
equity market. And we all know the stories that even
the Switch National Bank are buying into US equities and
(36:59):
so on as this kind of way of relocating capital.
And you do that because lesbi frank it has been
the only pure capitalist market with breadth and depth over
the last long period. I think what's happening with Trump now,
I think that it's maybe too early to say that
(37:20):
it's going downhill, but we are seeing I'll say, the
first element of what you could call chrony capitalism, where
you can say the way all kind of a big
tech leaders have to show up at mar Laka and
literally donate money into a fund and so on. And
I guess if that had happened in an emergent market country,
I can assure you the headline would have been everything
(37:42):
about a corruption, bribery, uninvestible, and here in this case
in US, the money just keep piling in on the
back of that. And of course, as an emergent market manager,
I can only sit there and say this smells like
what we see when it's bad in the emergent market,
and you literally get a slap over your on that one.
But somehow US seem to be getting getting away with it.
(38:04):
But the point I want to make is that when
we start to see these development, whether we are saying
is this the beginning of chrony capitalism and so on
moving in, I think it is where you probably start
to see rich to us from a longer term perspective,
because as there's one thing that is sure, the second
you really get chrony capitalism, I think it's start to
(38:25):
impact your productivity, your return, your risk profile. And again,
don't get me wrong here, I'm not saying that US
is changing overnight or anything like that, but it's just
saying it is. In my mind again, been looking at
and investing for more than twenty years, it's probably one
of the most significant changes I have been witnessing in
(38:47):
my investment career this way. The political system in US
are changing these days, and I think there is down
the line at risk if this trend continue. And I
guess in in many ways, at least on a relative level,
some key emergent market countries again like Indians on actually
starts to look a little bit more safe on a
(39:08):
relative level versus what we're seeing in US. So hopefully
it can help drive this NARTI around a new multipolar
world that deserves some capital still early days. I absolutely
acknowledged that and hopefully we do not go down that
that that route, but it is just something that is
worth mentioning.
Speaker 2 (39:26):
Yeah, so you know, you meant you know, you mentioned
the US market. You know, tech AI has been a
key driver of the US market, but it also had
you know, lifted Taiwan over the last year, you know,
due to chip demand. But more recently, I think we're
seeing some momentum slow in the chip sector, some rotation
(39:47):
into software and AI services UH have picked up. You know,
do you do you think chip them in is still
solid going into next year or or is it kind
of time to move to the next phase of AI
album or because I think this question is you know,
kind of important for emerging markets going forward.
Speaker 4 (40:07):
Yes, I think it's a very good question, and there's
no question we have been heavily loaded over last couple
of years in technology, particularly in Taiwan, and it's just
definitely of the driver for our performance over the last
couple of years. I would say we are definitely been
(40:28):
getting more cautious on memory. So also on back of
that kind of first indication over the summer, we did
also trim some of our memory exposure down. I'll also
be very frank and say part of that reduced exposure
there was also disappointment on Samsung Electronics and their execution
skills and just generally what's going on there. So I
(40:50):
think it was not purely a memory story. There was
also there was an internal Samsung story that was making
us a bit vary, and to be frank, we've been
a little bit disappointed there. So we did take some
capital away there for sure, But I'll say where we
still believe there is a quite excitement story then, and
that's you can say even before you have the Las
(41:10):
Vegas a big event and Nvidia as a rockstar boss
suddenly saying we are now moving beyond the data center
we're going to computers and laptops and mobile devices, and
we can really spread around which by the way, should
be the pullus. And we've actually seen quite good performance
in in Asian take the last two days on these
kind of leak stories, but you can say going back
(41:34):
to you can say, pre the last two days fast,
the key story has must been on what you call EESIC.
So these application specific integrated circus where you can say
clearly this idea that if you want to run an ailgorithm,
this idea to do a bit like a chat GPT
where you literally take put very simplistic all the information
(41:55):
in the world and try.
Speaker 3 (41:56):
To run an algorithm on it.
Speaker 4 (41:57):
It is very energy intense and probably for a lot
of industrial applications on that is probably not optimal and
what you do so see a lot more of these
kind of very application specific design and we actually think
that the run rate there where it's at application devices
or you can say what goes into the data centers,
we still think there's a quite good long growth rate
(42:19):
there and we definitely see a couple of key companies
in Asia being very well positioned to.
Speaker 3 (42:26):
Deal with that.
Speaker 4 (42:27):
So you can say in a way we definitely still
feel an un selected basis that we can add a
capital there and feel that we're really buying into a
quite attractive valuation relative to the expected growth level. And
again we are still buying companies that are generating very
high returnal bastic capital and even a number of them,
even though are still in that growth mode, are still
(42:48):
able to pay out actually quite handsome dividend and they
run with a very clean balance sheet. So again in
an em context, if you kind of do like a
three dimensional structure between the turn on basic capital, sharing
that total turn capital and then also still have a
strong balance sheet, a lot of these Taiwanese companies they
are really tacking the box there and do come out
(43:09):
as some of the best allocators of capital at the
same time as they can run extreme clean balance sheet.
So that is clearly also what we are attracted to,
and we believe they can keep doing that in the
foreseable future. As I say, we still believe we're in
a pretty big structural op trend. From a technology perspective,
We still think the way the world will look like
(43:30):
five years from now in terms of aidops in data center,
faster connectivity, etc. There is a long runway there, and
we do actually this time around, we're not claiming for
a second that you still not have some of the
leading companies in the form of the likes of Nvidia
or the software side, the big kind of the superscalar
(43:51):
companies in US. But when it comes to that IC
design manufacturing side, a key component side, this time around,
we actually believe that a number of these Asian companies
actually have a very key role to play and they
are clearly shifting to that you can say you as
supply chain side, and we think it will give them
(44:12):
a very good lift in the years to come. So
for that reason, we do actually remain quity upbeat going
into twenty twenty five, and we acknowledge that maybe first
half is a little bit on the soft side, at
least for a few selected names, but we are probably
already now seeing that the second half should be pretty
(44:32):
pretty okay and going into twenty twenty six. The interesting
thing about some of this ESSEIC or some of these
design project is that you actually have some form of
visibility because you can say the manufacturing capacity with the
likes of TSMC, in particular their cod capacity for advanced
packaging that is very very tight, so you literally need
(44:55):
to book your capacity way ahead. And again we've seen
the likes of of Amazon literally already having booked a
project with al Chip for their data center chips with
the YEA I have tape out in twenty twenty six,
so we do actually have some pretty decent visibility for
a number of companies. So when we look the next
(45:15):
two years ahead, we actually think that not saying we
cannot get a little bit of disappointment quarter here and there,
but we think the structural trend is actually pretty compelling
and giving. We had quite a bit sell off in
takeover the summer, and I think it was also one
of the months here in the later half of the
year we also saw a bit of weakness. Valuation level
(45:37):
still pretty pretty fair and attractive, so it's not like
this is super high valuation. So I still think that
valuation versus growth is pretty compelling, for particular the Taiwanese cases.
Korea is also very very cheap, but I guess the
issue of course with Korea is you are often getting
(46:00):
a bit cheated by that. You can say that the
sechnicality in the market that is for memory or is
some of the equipment makers, and they are not totally
a bit more signical. And then of course you have
to bear the governance risk, and of course lately we
could even add the political risk. Even when that is said,
I think that in a way and in a rational way,
(46:21):
the TIC sector has not been reacting particular as significant
to all the political noise in Korea, which I actually
also think is correct. I think that there will not
be big changes in their outlog or operational environment, giving
what's happening on the political scene. But yeah, of course
on the margin, is not helpful that you have all
(46:42):
this noise going on in Korea.
Speaker 1 (46:45):
Well, this is great. We are unfortunately running out of time.
But Jerry, thank you so much for joining us today.
Speaker 3 (46:51):
Thank you very much for having me.
Speaker 1 (46:54):
And Marvin, thank you for being my ghost today.
Speaker 2 (46:57):
Thank you, thank you, Jory.
Speaker 1 (46:59):
Until our next SEP episode, This is David Khane with
Inside Active
Host
Gina Martin Adams
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