Observations in Emerging Markets: A Range of Opportunities Pt. 2

Observations in Emerging Markets: A Range of Opportunities Pt. 2

Elle Wu:  Are there any sectors or countries that you’re excited about going into the second half?

Josh Rubin:     It’s hard not to be excited about almost all parts of emerging markets right now.  So, maybe just to walk around the world a little bit, I think in China entering the year it was a little easier to be thinking on a cyclical recovery being a rising tide that could lift all boats.  Today, what we know about China is maybe the fixed investment or the construction-driven part of that recovery is going to be slower, but consumption-related stories are really interesting right now.  And what’s nice about that is domestic Chinese consumption stories don’t have US dependence, don’t have European dependence.  So, we’re still very uncertain will the US be entering a recession, will Europe be slowing down, and in China we have a lot of investment opportunities because of the selloff that’s happened during the second quarter where we don’t have to take that external sensitivity or make a bet on the external situation.  Across southeast Asia, what we have seen is continued stability, um, tourism coming back still with the reopening, partially from China’s been very good, stable commodity price has been very good.  So, across southeast Asia, there’s a variety of sectors from financial to consumption that are very interesting.  And I think if we go to Latin America, this is one where, um, because it’s in our time zone, so to speak, lots of times we associate the health of Latin American economies with the health of the US, but actually, there are a few, uh – you know, oftentimes, we talk about how emerging markets zig while the US zags, or while development markets zag, and that is definitely what we’re seeing in, in Latin America.  So, uh, parts of Latin America have decelerated over the last year because they moved faster than the US did in terms of raising interest rate policies, or because of some of the inflationary pressures.  Those are very clearly abating.

Josh Rubin:     And so across sectors and across countries, we see a number of companies whose earnings are accelerating, valuations are at or near all-time lows, and where we see the macro backdrop being one where, even if the United States is still raising interest rates or squishing the economy, those Latin American economies and Central Bank policies are easing up and re-accelerating.  So, I think Latin America is a market where we truly have more investment opportunities than we know what to do with.  It’s a little bit the same in, in the Chinese consumer space, but that’s a bigger part of the index, or part of our portfolio, so we are taking a lot more shots there, but it really is across emerging markets, we’re seeing the opportunity for exposures that are not dependent on developed markets, and that because of the valuation setup or the accelerated gro, earnings-growth setup are really attractive entry points right now.

Elle Wu:          That around-the-world perspective is very interesting.  Is there any difference in how you’re building your mosaic this year versus the past few years?

Josh Rubin:     That, that’s actually an, an important question, and, and the answer is yes.  I think during Covid we certainly embraced Zoom and conference calls for the way of engaging people, whether it was companies, policy makers, or other industry experts, but starting in the back part of last year and really accelerating into this year, our travel schedule has really gotten going.  So, year to date, our team has been in close to ten emerging-market countries.  If we add in what we were doing in the back part of last year, we’re closer to 15.  I think just, uh, within our team we’ve had five people in China this year spending close to 3 months total, so I do think sort of being able to rebalance the knowledge you get from long distance compared to on the ground has been really important.  And, and I this matters because a big part of what we try to do at Thornburg is balance being on the ground and being in the weeds with stepping back, being in Santa Fe away from the noise, and having the time to really collect our thoughts and connect the dots about what’s happening, and that’s just a lot harder to do when you have Zoom versus spending time on the ground.  So, I, I was in China for 2 weeks straight.  Char, Charlie, our co-PM, was there for another week, and other members of the team were there for months at a time.  And then we can come back and really talk about these things, and, and that’s really helped enhance both our conviction and our mosaic as we get to the back half of this year.

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