Remoteness: Accessing the best of emerging markets
Jason Pidcock and Sam Konrad discuss the theme of “remoteness” and highlight where they’re finding the most attractive emerging market opportunities in Asia Pacific.
![Jason Pidcock Jupiter Fund Manager and Head of Strategy, Asian Income](https://www.jupiteram.com/uploads/2021/02/4ff70501e915e2f01d90dc86c791b5ac/jason_pidcock_850x800.jpg?v=1640781436)
![Sam Konrad](https://www.jupiteram.com/uploads/2022/10/bfe3d9d7fb7e0b7dc6d91dd53949baed/sam_konrad_rgb_350x350px-circle.jpg)
In Asia, we have already had election results from Taiwan and Indonesia, though both outcomes were largely anticipated, with the status quo being maintained. Voting is set to begin in April for India’s national election, with results due in June; a re-election of Modi is looking like the most likely outcome following better-than-expected results for the BJP party in recent state elections.
However, it is election results outside of Asia that are likely to have the most significant impact on Asia Pacific (ex Japan) equity markets this year, and globally. All eyes are on the US election in November, the outcome of which, undoubtedly, will be far-reaching. If we were to see a win from Donald Trump, we could expect to see an escalation in geopolitical tensions, not only in terms of the US’s relationship with China, but with potential implications in the Middle East and Ukraine too.
Recently, we have increased our exposure to tech companies as our conviction has grown in the sector; we believe several of our holdings should be primed to benefit strongly from the global rollout of AI over the longer term. These tech companies can be viewed as being part of our “connectedness” exposure – i.e. businesses which generate global revenues and are highly adaptable, global leaders in their markets – and have been beneficial to our strategy year to date.
At the same time, given heightened geopolitical tensions and potential flare-ups, we have also decided to top up our positions in a defence company and a gold miner, as well as adding to several positions in companies that we view as a play on “remoteness”. We identify the latter as companies that we view as being relatively insulated from the global economy – from geopolitical tensions, trade flows and embargos, among other factors – and therefore less likely to be impacted by what is happening elsewhere in the world. There are a number of highly attractive emerging market companies in the Asia Pacific (ex Japan) region that we believe should be beneficiaries of strong domestic growth stories instead.
ITC, for example, is our biggest holding in India. It is India’s largest packaged foods and beverages company, with a range of additional business divisions in areas like tobacco, agriculture and hotels. Three in four Indian households consume ITC’s food brands, and three quarters of Indian retail carries its food brands. ITC offers an attractive dividend yield, it has a strong balance sheet and a professional management team, and its shares are very liquid.
We also hold Power Grid, which is an Indian electricity transmission company. The company is benefiting from an increase in demand for electricity in urban states, as well as enabling connectivity in rural areas, which are being connected for the first time. We view Power Grid as an attractive play on India’s development.
Elsewhere, we are able to find exciting opportunities in Indonesia, a country which appears to be following in India’s footsteps in terms of its economy, with growth expectations of around 5% over the next couple of years. Our exposure there includes Bank Rakyat, which specialises in microlending, with a significant proportion of its loans being under US$100. Its customers live in very remote locations many miles from financial institutions, with no safe alternative financing options. Bank Rakyat offers high returns on equity and assets, strong margins, and an attractive dividend yield.
Away from the tech sector, we hold positions in miners like BHP, which we believe should continue to benefit from selling commodities to countries like India as they invest more in infrastructure and electrification. In Singapore, we own banking group DBS, whose banks operate across the region; Singapore Telecommunications, which is also a play on regional growth, with a presence in India, Indonesia, Thailand and the Philippines; and ST Engineering, which we like due to its defence and Smart City divisions, as well as its aircraft MRO (maintenance, repair & overhaul) business.
Holding examples are for illustrative purposes only and are not a recommendation to buy or sell.
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