Emerging markets: when the crowd gets it wrong
Short Briefings on Long Term Thinking - Baillie GiffordShow Notes
The biggest car-carrying ships on the planet. A chip-testing rig that weighs as much as a small elephant. Investment manager Alex Summers takes us inside some of emerging markets’ least-watched growth companies to explain how his team sees what others have missed. “Often, the crowd is going to be right,” he acknowledges, but when it’s not, long-termism, access to management and asking different questions are key to how his team determines investment opportunities.
Background: Alex Summers is co-manager of our Emerging Markets Leading Companies Fund, an investment manager in our Emerging Markets Equity Team and a member of the International Growth Portfolio Construction Group. In this conversation, he tells Short Briefings… host Leo Kelion why one of his team’s guiding principles is that before investing in a company, he and his colleagues must be able to articulate the critical uncertainty about a stock and why others may be wrong. “Often, you can observe something about a company, and it may be true,” he explains. “But if everybody else believes that, you’re not going to create any additional outperformance by owning those companies.”
Companies discussed include: Hyundai Glovis – the logistics company that’s invested in a dozen ultra-sized ships and now sees an opportunity in transporting spent electric vehicle batteries Chroma ATE – the test-equipment company whose customised cabinets provide critical checks for NVIDIA and Nasa Silergy – the mainland China-based semiconductor company specialising in power-management chips Reliance Industries – India’s most valuable company and its heavy investment in solar panels, green hydrogen and battery storage systems Toss – the South Korean financial super-app that provides banking, payment and ecommerce services
Resources: Baillie Gifford website Emerging Markets Leading Companies Fund Emerging markets: from imitators to innovators (video) Emerging markets: the next engines of global growth Short Briefings on Long Term Thinking podcast archive When consensus fails Companies mentioned include: · Chroma ATE · Hyundai Glovis · Meituan · NVIDIA · PB Fintech · Reliance Industries · Samsung Electronics · Silergy · SK hynix · Talabat · Toss · TSMC Timecodes (audio version): 00:00 Introduction 01:45 From Toronto to Edinburgh 02:35 A lesser-covered class of companies 03:35 Taking a five-to-10-year view 04:15 Forming non-consensus views 05:35 Hyundai Glovis and EV batteries 07:10 Corporate governance reform in South Korea 09:30 Getting access to senior leaders 11:50 Chroma ATE’s chip-testing equipment 14:50 Building conviction in Silergy 16:30 Declining to invest in Talabat 18:20 Visiting Reliance Industries in Jamnagar 20:45 Retaining sell discipline 22:00 Toss and private companies 24:15 Moving towards physical assets 25:35 Podcasts and Substack picks
Glossary of terms (in order of mention): Magnificent Seven: A nickname for seven large US technology-related companies – Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA and Tesla. Holding period: The length of time an investment is owned. Corporate governance: The systems and processes by which a company is directed and controlled, including board accountability and the treatment of shareholders. Minority shareholder: An investor who owns less than a controlling stake in a company and cannot direct it alone. Bottom-up investing: Assessing individual companies rather than starting with forecasts for economies, markets or sectors. Economies of scale: Advantages that arise as a company handles more volume, reducing the average cost of each unit. Profit margin: The proportion of revenue left as profit after costs have been deducted. Graphics processing unit (GPU): A chip designed to perform many calculations in parallel, originally for graphics but now also widely used in AI. Analog chip: A semiconductor that processes continuous real-world signals, such as sound, temperature or voltage. Flotation or initial public offering (IPO): The process
More from Short Briefings on Long Term Thinking - Baillie Gifford
“Europe looks more like emerging markets than it does North America,” Joe Faraday, Baillie Gifford’s new head of European equities, suggests in this conversation. He means that growth takes many forms across the continent, creating an eclectic mix of companies to choose from and specific circumstances to consider. As he reveals, it’s led him to reposition the portfolios under his watch, broadening the types of companies they contain.
Baillie Gifford first invested in SpaceX in 2018, nearly eight years before its record-setting stock market listing. Investment manager Luke Ward, who championed the holding, discusses what first drew him to the business, why Starship is critical to its future, and reveals where he’s now looking for another company with industry-upturning potential.
Tokenisation represents an “operating system upgrade” for the investment industry, says Theo Golden, Baillie Gifford’s new head of digital assets. In this episode, they explain what it involves and how it should deliver a better experience, both by reducing the number of middlemen between you and your investments and making your holdings more “useful”.
The US public’s tastes and habits are fragmenting, leading to new consumer behaviours. The shift from a handful of TV networks to an endless supply of streamed shows and social media clips is just one of many causes. Investment manager Dave Bujnowski discusses the characteristics that determine which growth companies should thrive in the resulting ‘high entropy’ environment.
Bottlenecks often act as constraints on growth, but companies that create funnels through them can gain pricing power and capture long-term value. Investment manager Mike Taylor reveals some of the companies he thinks achieve this best and how he spots such pinch points before they fully form.