Vice-president and portfolio manager, CI Investments Inc., Toronto
Matthew Strauss concedes that the road to investing in emerging markets is littered with potholes—government intervention, poor corporate governance, lax reporting standards and more. But he and his team, including analysts in Hong Kong, are always primed to do a deep dive into a potential investment, and that has paid off. Over the past decade, his $817.4-million Signature Emerging Markets Fund has outpaced the MSCI Emerging Markets Total Return Index. We asked the 50-year-old portfolio manager how he’s playing a global semiconductor chip shortage and why he likes Chinese e-commerce giant Alibaba Group Holding.
How do you pick stocks, given the volatility in emerging markets?
Volatility is not as big a problem as it was 20 years ago, but tackling it takes more effort than reading a financial report. Networking and building trust with management is key, as well as meeting with suppliers, competitors, sell-side analysts and regulators. Our portfolio owns best-in-class companies, such as South Korea’s Samsung Electronics; secular growth stocks, such as Chinese data-centre provider GDS Holdings; cyclical growers, such as Brazilian oil giant Petrobras; and defensive names, such as Wal-Mart de Mexico. We invest in initial public offerings too.
What is your outlook given the sell-off in February?
We started this year with continued strong momentum from 2020, but the market became concerned with rising U.S. real interest rates and China’s central bank withdrawing stimulus. There is also the risk that some emerging markets, such as Brazil and India, don’t have the fiscal resources to deal with COVID-19. Still, we’re positive on emerging markets in the medium and longer term because of the strong growth potential. The International Monetary Fund is forecasting annual average growth of 4.6% for developing countries from 2022 to 2026, versus 2% for developed markets.
Where are you finding the opportunities?
If you look at the pipeline of IPOs and other share issues in recent years, most have come from Asia. That’s reflective of dynamic economies. China’s ByteDance [owner of video apps TikTok and Douyin] is a highly anticipated IPO. China is still our biggest country weighting, but we reduced it from last year because of talk of monetary tightening. For us, India has a lot of potential if it can handle the COVID-19 pandemic well, as does Indonesia, with its fast-growing domestic market. South Korea and Taiwan both offer opportunities in the technology space.
Given that Taiwan Semiconductor Manufacturing and Samsung Electronics are top holdings, are you playing the chip shortage that has hampered production of everything from cars to consumer electronics?
We have high-conviction bets on these companies because of their cutting-edge technologies, but the shortage is an added reason to hold them. We see the shortage as temporary, but it could spill over into 2022. We also own MediaTek, a Taiwanese semiconductor company, and South Korea’s SK Hynix. We think the thematic play on semiconductors and memory chips, which stems from the cloud-sector explosion, is a multiyear trade.
What other themes are you betting on?
We like e-commerce, which we play through companies such as Alibaba, MercadoLibre (which focuses on Latin America) and Sea, in Southeast Asia. Another growth theme is electric vehicles (EV) and batteries. We own Chinese EV makers, such as BYD and Xpeng, whose cars are competing against Tesla’s Model 3 in China. We also own South Korean chemical company LG Chem mostly for its EV-car battery business.
A Chinese regulator slapped Alibaba with a US$2.8-billion antitrust fine in April for treating merchants unfairly, including restricting them from selling on other platforms. Are its woes over?
The market became concerned when tensions between Alibaba and the Chinese regulators flared up last year. The government also blocked Alibaba’s US$37-billion IPO of its fintech arm, Ant Group. With the fine and Alibaba agreeing to restructure Ant into a financial holding company, the uncertainty is over. There will be fiercer competition for Alibaba, but other players will also have to follow regulations. However, Alibaba has a very dominant market position, and we don’t see that suddenly being under threat.
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