Speaker 1: Welcome to Maren Jock's Money the After Show. This is
Speaker 1: where we unpack all the commentary you here in our
Speaker 1: regular podcast. I'm Maren sum So Web. This week, John Steppeck,
Speaker 1: senior reporter at Bloomberg, author of the Daily Money Distilled newsletter,
Speaker 1: joined me to discuss my conversation with Jonathan Asante from
Speaker 1: manager at Your Car Investments. Jonathan started with you Carr
Speaker 1: Investments and this year after taking a short break from
Speaker 1: the industry in twenty nineteen. Before that, he worked as
Speaker 1: Stewart Investors for fifteen years and I've been watching his
Speaker 1: career for some time. John, I don't think you've ever
Speaker 1: met Jonathan, and because he was you know, I met
Speaker 1: him in Edinburgh a few times. I'm not sure you
Speaker 1: ever did. What did you think about that interview?
Speaker 2: Yeah, that was met but I thought that was great.
Speaker 2: That was really thought for working wine.
Speaker 1: What thoughts were provoked?
Speaker 2: I mean, it's EM's I met in markets of something
Speaker 2: that sort of have. I don't know what you think,
Speaker 2: but it feels as if they've almost vanished off the
Speaker 2: radar in a lot of ways when talking about markets.
Speaker 2: I mean, obviously that's partly because the US has sucked
Speaker 2: up basically all of the oxygen and all of the money.
Speaker 2: But it is also because obviously what he said about
Speaker 2: governance is absolutely correct, and it's interesting that they were
Speaker 2: onto that really quite early. By the sounds of it.
Speaker 2: You're obviously China becoming more authoritarian is the kind of
Speaker 2: big one. But you know, things that he pointed to
Speaker 2: it like Turkey kind of you know, going off the
Speaker 2: rails somewhat when it comes to governance. I thought that
Speaker 2: was a really interesting point, and also just emphasizing that
Speaker 2: point about governance is something that certainly we kind of
Speaker 2: forgot has developed market investors during the nineties and early
Speaker 2: two thousands, because there was that whole period where everyone
Speaker 2: was saying, yeah, it's all fine, you can stick as
Speaker 2: much money as you want in Russia. Capital is going
Speaker 2: to win out anyway, and then of course you find it, well, actually, no,
Speaker 2: that's that's not how things work. Can do your world,
Speaker 2: and the person who is able to make the laws
Speaker 2: actually has much more power than the markets do.
Speaker 1: Yeah. I mean I was into that as well, and
Speaker 1: I was particularly pleased that he talked about it like
Speaker 1: that because one of the things that I know is
Speaker 1: driven you mad and has always driven me mad. Is
Speaker 1: this idea that if you see economic growth in a country,
Speaker 1: if you see the GDP numbers going up, you're automatically
Speaker 1: going to see the stock market going up as well.
Speaker 1: And there's decades of evidence to show us that that
Speaker 1: isn't true, but people still think it is, and they
Speaker 1: still write those articles going, oh, look, this company's getting richer,
Speaker 1: therefore you should buy the stock market.
Speaker 2: Yeah, I mean, and that's I mean, the best example
Speaker 2: of that is actually, again so ones that came up
Speaker 2: in the conversation with China versus India, and you've been
Speaker 2: far putting your money and the Indian stock market at
Speaker 2: almost any point really in the last ten years, whereas
Speaker 2: in terms of the country that has developed most economically
Speaker 2: and you know, and certain metrics improve the lis of
Speaker 2: its own citizens more, then that would you'd have to
Speaker 2: say that was China, you know. But but India has
Speaker 2: produced by far the best shareholder runs over that period.
Speaker 1: And I suppose the other point, it's not just about
Speaker 1: the governance, and it's not just about the government. It's
Speaker 1: also about the valuations where things start. And whenever I
Speaker 1: write articles about look, economic growth is not the same
Speaker 1: as stock market growth. I tend to start with valuations,
Speaker 1: but next time I do it, I'm going to think
Speaker 1: more about what Jonathan said and start with governance.
Speaker 2: Seriously, I think Russia is the very obvious one on
Speaker 2: that front. It's like you can have as many as
Speaker 2: you know, It's often been the cheapest market in the world,
Speaker 2: and there's often been points where you know, I would say,
Speaker 2: despite my kind of like long skepticism of it, that
Speaker 2: have been points would have thought that is so cheap.
Speaker 2: Surely to good nation, or she sticks some more, and
Speaker 2: of course you'd be able if you were a trading person,
Speaker 2: you could have made a lot of money in it.
Speaker 2: But you know, and now that it's kind of like
Speaker 2: a pariah state and your capital's basically stuck there if
Speaker 2: it was there, And I think the risk is that,
Speaker 2: you know, you keep reading about people keep saying, oh, yeah, no,
Speaker 2: China is looking cheap and you know how you should
Speaker 2: stick some money, and just now you're thinking, well, I
Speaker 2: don't really see how this mentality can stand side by side.
Speaker 2: When there's articles on Bloomberg about how China could take
Speaker 2: over Taiwane. You know, you're kind of like, if you
Speaker 2: if China invetes, time wine. What do you think is
Speaker 2: going to happen to any money you've invested in any
Speaker 2: Chinese stock? Just have a wild guess.
Speaker 1: And particularly when you don't own those stocks. That right, well,
Speaker 1: exactly various mechanisms. But I just want John, before we
Speaker 1: go in a further I want listeners who haven't known
Speaker 1: you and I for a long time to know what
Speaker 1: you're doing here. Right. I know you think that their
Speaker 1: new listeners out here, and what you're saying is completely innocent,
Speaker 1: and I'm the only one who picking it up. But look,
Speaker 1: listen it okay. John always said Russia will never be
Speaker 1: cheap enough. You should never buy Russia. There's too much
Speaker 1: that could go wrong. The geopolitical risk is too high,
Speaker 1: the government is too awful, et cetera. And I said,
Speaker 1: sometimes it's cheap enough. And there was a point when
Speaker 1: I wrote a column saying Russia is now so cheap
Speaker 1: it's pretty much discounting a return to communism or World
Speaker 1: War three, and that's not going to happen. So I
Speaker 1: suggested people bought Russian equities. I was completely wrong. And
Speaker 1: what John's doing here is just letting you know that
Speaker 1: he was right there, right on the entire last five
Speaker 1: minutes have been it's a very sophisticated type of audio
Speaker 1: frolling of me.
Speaker 2: Well, it's just a ninety eight percent your ratement with
Speaker 2: so I just need to tame that.
Speaker 3: I was there's our personal conflicts aside the one one
Speaker 3: of the many things that I thought was very interesting
Speaker 3: in my conversation with Jonathan was his approach to ESG.
Speaker 1: And I was really interested in the way that he
Speaker 1: looked at luxury goods companies. And he looked at it
Speaker 1: in terms of not the way they run their businesses
Speaker 1: and you could talk about that, but the clients that
Speaker 1: they have and where the money that their clients have
Speaker 1: come from. And he talked about being concerned about investing
Speaker 1: in the big luxury goods companies because their clients represent
Speaker 1: capital flight from countries that really should be using their
Speaker 1: cash to improve the lives of their populations in general,
Speaker 1: rather than nicking it by handbags. And I thought that
Speaker 1: was really interesting because it was I think a correct
Speaker 1: way to look at ESG. This isn't about box ticking,
Speaker 1: this is about thoughtfulness.
Speaker 4: We found it very difficult, and again we haven't had
Speaker 4: much chance to invest in them. We found it very
Speaker 4: difficult to invest over the years in luxury goods companies,
Speaker 4: and that's an even grayer area. And on the one hand,
Speaker 4: it's very aspirational and you know, people striving for material,
Speaker 4: to gain pleasure for material. On the other hand, we
Speaker 4: have we associate it and we have some evidence that
Speaker 4: it's also linked to political economies or an elite is
Speaker 4: stealing capital flight when it.
Speaker 1: Comes back centered money not being shared and.
Speaker 4: You know, ending up in London or Singapore. And it's
Speaker 4: interesting the Singapore government, i think, is thinking about this
Speaker 4: now as well. And so what you're doing there is
Speaker 4: you're trying to weigh up a number of gray areas.
Speaker 4: You know, one is is quite a positive sort of striving,
Speaker 4: and the other is actually there's a lot of capital
Speaker 4: flight involved in the developing world in some of these goods,
Speaker 4: and that's going against what.
Speaker 2: Yeah, and that was really thoughtful because I was reading
Speaker 2: through the transcript and I saw various other ones and
Speaker 2: there saw louxury goods come up, and my immediate assumption was, Okay,
Speaker 2: there's gonna be something to be the factories and really
Speaker 2: make their stuff. And it wasn't you know, you're really
Speaker 2: it's absolute. This is a kind of capital flight, and
Speaker 2: I thought that's a really interesting we are look at it.
Speaker 2: It's also is really sophisticated, and it's also only something
Speaker 2: that someone with genuine experience of emerging markets we'd think
Speaker 2: of because the rest is sorely you or can you know,
Speaker 2: set down and think, well, you know, hind bags fancy
Speaker 2: hand bags? Was wrongly our fancy hand bag except maybe
Speaker 2: skind an alligator to get it or something like that.
Speaker 2: I don't know, So yeah, I thought that was that
Speaker 2: was as you say it can that's that's real ESG
Speaker 2: rather than box taking.
Speaker 1: It's genuine thoughtfulness about both the the S and the
Speaker 1: G in ESGN, and we don't come across that much. Also,
Speaker 1: I think of interest was going much for what you're
Speaker 1: saying about China and India that it was India where
Speaker 1: he said, well, he doesn't like to hick countries. He's
Speaker 1: very clear in saying India is the place where he
Speaker 1: finds the most companies that fit fit their criteria.
Speaker 4: At the moment, we've tended to find more companies over
Speaker 4: the many years in India, and that's not that's because
Speaker 4: there are so many companies listed in India. It's the
Speaker 4: proportions are still quite low, but it's just that there
Speaker 4: are just so many and the stock market has been
Speaker 4: allowed to evolve in a sort of vibrant way. We
Speaker 4: would have hoped twenty years ago at the Turkey would
Speaker 4: have gone the same way, but under different leadership it hasn't.
Speaker 4: So that's a place where we find lots of companies.
Speaker 4: We can find a few in Latin America.
Speaker 1: That was interesting because people keep asking us, don't make
Speaker 1: China or India, China or India, and we tend to
Speaker 1: think only on the India.
Speaker 2: Yeah, I mean the frustrating thing that India is that
Speaker 2: it always looks expensive and it's never not looked expensive
Speaker 2: basically the whole time you and I have been covering it.
Speaker 2: And I think, so I suppose you you probably just
Speaker 2: have to swallow that if it's you know, something that
Speaker 2: went to the cup. Also, obviously it's another argument for
Speaker 2: active investment. And I don't know if maybe Jonathan was
Speaker 2: subtly making that point, because he did say it's partly
Speaker 2: a function of the fact that India has just got
Speaker 2: like thousands of companies, and it says it's a small
Speaker 2: proportion of them that is interested in but because there
Speaker 2: are so many that's actually still quite a big playing field,
Speaker 2: even though it's a tiny percentage. So yes, so maybe
Speaker 2: Lissners if you if you do want to go into
Speaker 2: emerging markets, that's a very good argument for using active
Speaker 2: rather than passive.
Speaker 1: Well, it's worth mentioning by the way that it is.
Speaker 1: It is the case a lot of pushback against US, obviously,
Speaker 1: but a lot of studies do show that outside of
Speaker 1: the US active management does that perform, not by much,
Speaker 1: not by much, but in the main outside the US,
Speaker 1: and particularly outside megacap US, the performance of active active
Speaker 1: managers tends to be superior. So, particularly in emerging markets.
Speaker 1: I do think that if you're going if you're choosing
Speaker 1: be from passive active, you may be a lot better
Speaker 1: off with active.
Speaker 2: Yeah, that was really interesting because I don't know if
Speaker 2: we're talking about the same study, but it was something
Speaker 2: that someone up for the FT and it was talking
Speaker 2: about why is active management processed? And yeah, absolutely, there
Speaker 2: was that point that at an institutional level where you
Speaker 2: get to pee lower fees, then there is a even
Speaker 2: though it's small, there's an OUE performance for everything except
Speaker 2: for US large caps.
Speaker 1: This is not the first study to show this. I've
Speaker 1: written about it several times over the years, because you know,
Speaker 1: frustrated active managers keep commissioning the same research. I'm getting
Speaker 1: the same result. But because so much active management is
Speaker 1: desperately trying to attempt to be something they can't really be.
Speaker 1: Large cap America people get this general idea that passive
Speaker 1: is better in every environment, and it simply isn't. Simply isn't.
Speaker 2: Interesting.
Speaker 1: Yeah, interesting anyway, onto valuations, and I have pulled out
Speaker 1: for us the latest valuation metrics table from Schroders that
Speaker 1: you and I both like to look at. Thank you Duncan.
Speaker 1: If you didn't listen to Duncan on our podcast a
Speaker 1: few weeks ago, back, go back and listen to it.
Speaker 1: He'sully good and emerging markets as usual come out on
Speaker 1: the cheaper side. So cycnically adjusted PE twenty one percent
Speaker 1: below fifteen year median forward PE kind of bang on
Speaker 1: trailing pee, kind of bang on price a book kind
Speaker 1: of bang on. So you know, in the great scheme
Speaker 1: of things, it looks relatively cheap, particularly compared to the US,
Speaker 1: which is stal on a CAPE of twenty eight sixteen
Speaker 1: percent above its usual level and price of book where
Speaker 1: it is on a level four point one forty three
Speaker 1: percent above. It's a historical level, I know. And you
Speaker 1: can argue that's all technology and you know that that
Speaker 1: much book value blah blah blah, But nonetheless it does
Speaker 1: stand up what I mattered. I'll just tell you that
Speaker 1: the other places that look cheap are the UK well done,
Speaker 1: the UK always cheap, always winning on cheap, always winning
Speaker 1: on cheap. The cheapest cheapest of the large markets in
Speaker 1: forward pemp sixteen percent below a little above in CAPE.
Speaker 1: So you know, that's bit disappointing. Trailing PE is still
Speaker 1: is still cheaper price and book still cheap. America super
Speaker 1: expensive across the board. You know, the CAPE in the
Speaker 1: US is now double that of the US of the UK.
Speaker 1: It's amazing.
Speaker 2: Really Yeah, who knows when when it will when it
Speaker 2: will adjust that. That's why we have diversified portfolios.
Speaker 1: That's why we have diverse FOO portfolios. Now at the end,
Speaker 1: last thing I want to talk about on Jonathan is
Speaker 1: that he for gold, bitcoin, gold. He's very modern Jonathan,
Speaker 1: very thoughtful. He thought about it a bit and then
Speaker 1: he went for gold, even though he doesn't feel one
Speaker 1: hundred percent comfortable with gold. You know, it's just not
Speaker 1: not his thing, and he hasn't done quite what he
Speaker 1: would have thought it would do over the last couple
Speaker 1: of decades, etc. Although I'd say it is doing what
Speaker 1: it's supposed to do now. However, he would choose gold
Speaker 1: over bitcoin definitely, and I didn't talk to him about
Speaker 1: at the time, but I thought about it afterwards. I wondered,
Speaker 1: if you talk to him about not just bitcoin, but
Speaker 1: about cryptocurrencies in general, he would have a similar ESG
Speaker 1: feeling about them as he does about the big luxury
Speaker 1: goods companies, in that you can't blame the providers, but
Speaker 1: an awful lot of the users aren't people you want
Speaker 1: to have supper with.
Speaker 2: Well, I mean, he did not for cash, and then
Speaker 2: can I twisted his arm which was bitcoin on gold?
Speaker 2: But I think when I mean, that's a really good
Speaker 2: point and bitcoin. The only thing I guess I would
Speaker 2: say is that I think the bitcoin probably beats handbags
Speaker 2: in terms of if you have to flee a country,
Speaker 2: and that is something that again an emerging market expert
Speaker 2: might actually we don't consider, but yeah, know it. There's
Speaker 2: no doubt that a lot of bitcoin usage, in crypto
Speaker 2: usage in general is for nefarious stuff. And the question,
Speaker 2: and it's certainly not ESG. I suppose it demonstrating bitcoin
Speaker 2: and luxury goods is that Bitcoin's always had this. It's
Speaker 2: not ESG thing hanging over it. Whereas the idea that
Speaker 2: the luxury goods sector is ethically problematic because of what
Speaker 2: the goods are used for rather than how they're made
Speaker 2: is a really interesting insight.
Speaker 1: Yeah. And the thing that I would have asked him
Speaker 1: if I'd known anything about it, and I might now
Speaker 1: ask people on our podcast is a question someone asked
Speaker 1: me an investment trust shovel or ask me at a
Speaker 1: lunch the other day. He said to me, what will
Speaker 1: happen if there is another Carrington event? Do you know
Speaker 1: what a Carrington event is?
Speaker 2: I saw you see this on Twitter and I googled it,
Speaker 2: so I know what it is now.
Speaker 1: Okay. The most intense geomagnetic storm in recorded history, which
Speaker 1: peaked on the second of September eighteen fifty nine during
Speaker 1: solar cycle ten. I've no idea what solar cycle ten is.
Speaker 1: That's not my area, but nonetheless it was incredibly beautiful.
Speaker 1: You can see the northern lights across the globe apparently,
Speaker 1: but it knocked out every single telegraph station everywhere. So
Speaker 1: what happens if there is another huge solar storm like
Speaker 1: that It was hypothetical but entirely possible, and it takes
Speaker 1: out pretty much everything. What is bitcoin during a Carrington event?
Speaker 1: And that's why I would always choose golf.
Speaker 2: I think that's absolutely fear turkey things. All you be
Speaker 2: tough to you have probably have to have your gold well, okay, probably,
Speaker 2: I'm just trying to think.
Speaker 1: If it was I shouldn't bring this stuff on you?
Speaker 1: Should I join it?
Speaker 2: I just thinking, so there was Carrington event and you
Speaker 2: had the gold, it's probably fine if you had the
Speaker 2: gold in a volt somewhere because that would be recorded,
Speaker 2: not in electronically, or at least some sort of paper
Speaker 2: trio somewhere. Possibly. Just try to think all this year
Speaker 2: register doesn't well.
Speaker 1: Gone gone, gone, gone gone, So maybe it's only the
Speaker 1: stuff on the blockchain that would still be there when
Speaker 1: everything came back on again. But it is one of
Speaker 1: those things that is a reminder that if you hold gold,
Speaker 1: you are really holding gold for you know, to protect
Speaker 1: you against inflation, but in extremists, you're holding gold so
Speaker 1: that you can have it on your person in extremists.
Speaker 1: So is it a good idea to hold large amounts
Speaker 1: of of gold digitally or in a volt or some
Speaker 1: a few sovereigns in your pocket all the time. There
Speaker 1: we go down a rabbit hole. We've gone, I think
Speaker 1: we better stop that. Thank you for listening to this
Speaker 1: week's Marin Talks Money the After Show. This episode was
Speaker 1: hosted by me Meren Sunset Weather alongside John Steffeck. It
Speaker 1: was produced by Summersidi additional editing by Blake Maple