WEBVTT - Polar Capital’s Nøddekær on Economic Value Added 0:00:12.920 --> 0:00:16.079 Welcome to Inside Active, a podcast about active managers that 0:00:16.160 --> 0:00:19.880 goes beyond soundbites and headlines and looks deeper into their processes, 0:00:20.200 --> 0:00:24.360 challenges and philosophies and security selection. I'm David Cohne, i 0:00:24.480 --> 0:00:28.040 lead mutual fund and active research at Bloomberg Intelligence. Today 0:00:28.160 --> 0:00:31.640 my co host is Marvin Chen, Senior Asia equity strategist 0:00:31.680 --> 0:00:34.800 at Bloomberg Intelligence. Marvin, thanks for joining me today. 0:00:35.120 --> 0:00:37.000 Thanks David, great to be here. 0:00:37.400 --> 0:00:41.160 So you published a note yesterday on emerging market signals 0:00:41.159 --> 0:00:44.760 for January. Can you tell us what emerging market investors 0:00:45.000 --> 0:00:46.240 could contend with this month? 0:00:46.720 --> 0:00:49.920 No published was basically a recap of em performance in 0:00:49.960 --> 0:00:52.400 twenty twenty four and what to watch out for as 0:00:52.400 --> 0:00:56.320 we kick off twenty twenty five. So the MSCI emerging 0:00:56.480 --> 0:01:00.000 market returned around five to six percent in twenty twenty four. 0:01:00.800 --> 0:01:03.840 You know, this was led by Taiwan and the semiconductor demand, 0:01:04.200 --> 0:01:07.399 but more surprisingly was that China was the second best 0:01:07.400 --> 0:01:10.320 performing market last year, and this was due to a 0:01:10.400 --> 0:01:13.440 surge at the end of the year from its stimulus blitz. 0:01:13.959 --> 0:01:15.920 Now this year, we think it will be critical year 0:01:16.000 --> 0:01:19.160 for China, which still needs to continue to stimulate demand 0:01:19.160 --> 0:01:23.440 to stem off prolonged deflationary pressures for the broader em 0:01:23.480 --> 0:01:26.520 We do think that headwinds are rising. You know, we 0:01:26.600 --> 0:01:30.120 haven't more a less clear FED rate path and a 0:01:30.160 --> 0:01:34.000 stronger dollar which may post challenges for EM fun flow, 0:01:34.120 --> 0:01:38.600 while the US tariff policy may impact global trade. So 0:01:38.680 --> 0:01:42.640 you know, we have Trump's inauguration inauguration later in January, 0:01:42.959 --> 0:01:45.360 and you know we're going to see if his tariff rhetoric, 0:01:45.480 --> 0:01:48.160 you know, turns into reality. So we think markets have 0:01:48.200 --> 0:01:50.720 a lot to contend with in the coming months, which 0:01:50.760 --> 0:01:52.160 can drive some volatility. 0:01:53.560 --> 0:01:57.120 Well, speaking of emerging markets, i'd like to welcome our 0:01:57.120 --> 0:02:00.640 guests today, Zuri Notodecker, who is lead for manager of 0:02:00.680 --> 0:02:05.360 the Polar Capital Emerging Market stars fund ticker po li X. Jerry, 0:02:05.440 --> 0:02:06.520 welcome to Inside Active. 0:02:07.160 --> 0:02:08.919 Thank you very much for having me pleasure. 0:02:09.880 --> 0:02:12.639 So we'd like to begin by learning more about your background. 0:02:12.960 --> 0:02:14.920 How did you get your start in the investment business. 0:02:15.280 --> 0:02:18.680 Well, I guess probably went all the way back to 0:02:18.800 --> 0:02:23.000 kind of a school when you were suddenly expecting that 0:02:23.080 --> 0:02:25.560 I planned to be an engineer. And then suddenly you 0:02:25.600 --> 0:02:28.360 started in your history lessons to get a lot about 0:02:28.400 --> 0:02:31.840 these kind of economic crisis and you suddenly got a 0:02:31.840 --> 0:02:35.480 bit fascinated by this idea how politics economic could also 0:02:35.480 --> 0:02:38.280 suddenly start to move something called equity market, and that 0:02:38.360 --> 0:02:40.920 definitely triggered a bit of interest. So I definitely decided 0:02:40.960 --> 0:02:43.400 that there's probably more for me to go to university 0:02:43.440 --> 0:02:48.760 to study economics and finance. And then during that time 0:02:48.919 --> 0:02:52.440 I was actually backpacking doing my bachelor and my master 0:02:52.520 --> 0:02:56.240 degrees in Asia, you know, just post the Asian financial crisis, 0:02:56.800 --> 0:03:01.440 and again that whole way society and markets and economics 0:03:01.520 --> 0:03:02.320 was changing there. 0:03:02.680 --> 0:03:03.960 It was quite fascinating. 0:03:04.000 --> 0:03:06.320 Of course, back then I was impressed with my back 0:03:06.320 --> 0:03:09.240 then Danish crowner how far they could get me after 0:03:09.240 --> 0:03:12.880 a lot of currency devaluation. But it was a fascinating 0:03:12.919 --> 0:03:16.320 development with the so called Asian Tigers economies and in 0:03:16.400 --> 0:03:19.720 the volatility they had there. And suddenly, when I was 0:03:19.760 --> 0:03:22.200 about to finish my master there was suddenly a smaller 0:03:22.320 --> 0:03:24.880 Danish Poutuguez, a manager called bank in West that had 0:03:24.919 --> 0:03:28.040 an analyst role for an Asian ecoity, aannalyst, and I 0:03:28.120 --> 0:03:31.080 just felt that job has to be mine, and I 0:03:31.120 --> 0:03:33.359 managed to get through the process and eventually managed to 0:03:33.400 --> 0:03:33.880 get the job. 0:03:33.919 --> 0:03:35.440 And as I say, rest is kind of history. 0:03:35.560 --> 0:03:38.800 So yeah, I went relative quickly from analysts to become 0:03:38.880 --> 0:03:42.640 a PM and running some smaller dedicated Asia funds, and yeah, 0:03:42.680 --> 0:03:45.120 in the end I ended up running some pretty sizable 0:03:45.480 --> 0:03:49.120 emergent market funds that I had created with my process 0:03:49.160 --> 0:03:50.480 around nice. 0:03:50.840 --> 0:03:54.040 So, for the listeners not as familiar with Polar Capital, 0:03:54.240 --> 0:03:57.680 could you give us an overview of the firm's investment philosophy. 0:03:59.000 --> 0:04:02.840 I guess the firm such do not have an investment philosophy. 0:04:03.040 --> 0:04:05.200 It is a so called boutique as a manager. There 0:04:05.200 --> 0:04:08.760 are around thirteen investment boutiques, and each boutique have a 0:04:08.920 --> 0:04:13.000 very you could say independent investment strategy, a lot of autonomy. 0:04:12.880 --> 0:04:14.200 Around how they want to do it. 0:04:14.480 --> 0:04:17.719 I guess the glue that really puts the Polar Capital 0:04:17.800 --> 0:04:20.760 together as a firm that is that every single of 0:04:20.800 --> 0:04:25.120 these investment boutique they are equity managers with focus on 0:04:25.240 --> 0:04:28.600 high alpha creating and really stock picking. So yes, again 0:04:28.920 --> 0:04:31.720 we use EVA valuation model, somebody else will using a 0:04:31.800 --> 0:04:35.120 DCA valuation model and so on, but generally everybody is 0:04:35.160 --> 0:04:38.520 a high conviction stock pickers really focusing on trying to 0:04:38.520 --> 0:04:41.080 be differentiated and beat the market. And I think that 0:04:41.200 --> 0:04:43.680 is really the differentiating point there, there's no kind of 0:04:43.960 --> 0:04:45.039 hooking the benchmark. 0:04:45.360 --> 0:04:47.960 Everybody is full alpha focused. 0:04:48.880 --> 0:04:51.600 That makes sense, and you know, the fun we're focusing 0:04:51.640 --> 0:04:54.359 on today, the emerging market Stars fund. How do you 0:04:54.440 --> 0:04:55.920 define star companies? 0:04:57.400 --> 0:05:01.360 We literally define it as companies that can sustainable create 0:05:01.400 --> 0:05:05.720 economic value added where it's mispriced by the market to 0:05:05.760 --> 0:05:09.799 do a firm definition there. So it's literally about finding 0:05:09.839 --> 0:05:13.279 these companies that are really good at taking capital, really 0:05:13.279 --> 0:05:17.160 accept there is a cost associated with capital, identify attractive 0:05:17.200 --> 0:05:20.720 growth opportunities, then deploy their capital, and hopefully as they 0:05:20.800 --> 0:05:24.600 monetize these growth opportunities that then create a strong level 0:05:24.600 --> 0:05:27.360 of return investic capital and they get that so called 0:05:27.360 --> 0:05:31.560 EVA spread and thereby they're really value creating companies. We 0:05:31.600 --> 0:05:34.800 all know that EPs numbers can be highly easily kind 0:05:34.800 --> 0:05:37.200 of manipulated and it doesn't really tell you about your 0:05:37.279 --> 0:05:40.600 value creation. But what we really believe tell something about 0:05:40.600 --> 0:05:43.360 your fundamental and value creation. That is literally that spread 0:05:43.360 --> 0:05:45.840 you can generate on your investing capital relative to the 0:05:45.960 --> 0:05:46.760 cost of capital. 0:05:47.480 --> 0:05:51.400 And you can say taking that point is that. 0:05:52.000 --> 0:05:54.520 We do believe over the longer term there is a 0:05:54.600 --> 0:05:58.640 strong link between your value creation and then your total 0:05:58.680 --> 0:05:59.520 shareholder of return. 0:05:59.640 --> 0:06:00.560 That you're generating. 0:06:00.600 --> 0:06:03.200 Because if you are a true value creating company, you 0:06:03.240 --> 0:06:06.440 can take that excess capital you can reinvest back into 0:06:06.480 --> 0:06:10.159 a people, technology, create IP, create brands, whatever it might be, 0:06:10.240 --> 0:06:13.880 to further enhance your growth opportunities, and hopefully the market 0:06:13.920 --> 0:06:16.200 will reward that. And there's no question we are growth 0:06:16.200 --> 0:06:19.479 manager and we would expect that most of our return 0:06:19.600 --> 0:06:22.560 to our shareholders would be coming in the form of 0:06:22.600 --> 0:06:26.119 capital appreciation. But what it also means if you're value 0:06:26.120 --> 0:06:28.800 creating companies and for some periods the market do not 0:06:28.920 --> 0:06:32.040 believe in the management team or there are other forms 0:06:32.040 --> 0:06:36.080 of risk measures that derail you from hitting your true 0:06:36.080 --> 0:06:39.479 fundamental valuation, then you can do share buy bags, or 0:06:39.520 --> 0:06:41.200 you are in a position where you can also do 0:06:41.279 --> 0:06:43.120 dividend with some of that excess capital. 0:06:43.240 --> 0:06:43.920 So the point we. 0:06:43.920 --> 0:06:45.680 Want to make is that over the medium to the 0:06:45.720 --> 0:06:48.479 longer term, we do believe there's a strong link between 0:06:48.520 --> 0:06:52.200 your real economic value creating and the level of total 0:06:52.240 --> 0:06:54.680 shareholder a term that you generate. And of course, as 0:06:54.800 --> 0:06:57.400 as so called a long only equity manager up against 0:06:57.400 --> 0:07:00.880 the benchmark, which clearly put some constraints you, we really 0:07:00.920 --> 0:07:03.360 focus on this idea about finding a so called ev 0:07:03.440 --> 0:07:06.640 eight delta, So finding that improvement in economic value added 0:07:06.760 --> 0:07:09.840 we believe on mispriced by the market. That is really 0:07:09.880 --> 0:07:12.920 the kind of alpha we try to identify. And you 0:07:12.920 --> 0:07:15.440 can say that isn't isn't part of that service for 0:07:15.560 --> 0:07:18.120 so called star companies is they have a strong delta 0:07:18.240 --> 0:07:19.720 in economic value added creation. 0:07:20.760 --> 0:07:23.200 So we know what you're looking for. Can we dig 0:07:23.240 --> 0:07:25.320 a little deeper into the process of you know, what 0:07:25.400 --> 0:07:28.480 is the starting point? You know, how do you approach 0:07:28.640 --> 0:07:29.880 looking for these companies? 0:07:31.040 --> 0:07:33.000 We start by defining growth. 0:07:33.320 --> 0:07:36.240 And you can say the way we define growth is 0:07:36.280 --> 0:07:39.760 to say, within a given economic area, we want to 0:07:39.880 --> 0:07:43.520 be able to identify some form of an imbalance between 0:07:43.560 --> 0:07:47.080 the domain side and the supply side. So put very simplicity, 0:07:47.120 --> 0:07:49.000 we can say we want some kind of steep growing 0:07:49.040 --> 0:07:53.160 demand curve or product or given service being it underpenetrated 0:07:53.400 --> 0:07:57.440 or have some kind of strong, longer lasting drive around it. 0:07:57.960 --> 0:08:00.200 And then on the supply side, we want there to 0:08:00.240 --> 0:08:02.880 be some form of a rigid structure such that there 0:08:02.920 --> 0:08:06.080 are limited amount of companies that can supply into that 0:08:06.200 --> 0:08:10.080 favorable domain environment, and thereby there's a decent chance that 0:08:10.120 --> 0:08:13.120 these so called companies on the supply side they have 0:08:13.160 --> 0:08:16.600 a chance to generate access return over an investment cycle 0:08:16.600 --> 0:08:19.280 and then not get competed away right away. So there 0:08:19.320 --> 0:08:22.520 need to be some form of competitive edge, some form 0:08:22.560 --> 0:08:25.640 of uniqueness. And that's also why you can say things 0:08:25.680 --> 0:08:28.560 where that you can call it barrass to entry or 0:08:29.080 --> 0:08:34.480 copycat products and on, or where your capacity is very 0:08:34.520 --> 0:08:37.280 easily added on, we do not tend to own a 0:08:37.320 --> 0:08:40.079 lot of companies in that area. So again take the 0:08:40.120 --> 0:08:43.400 classical example of telecom where it's very easily to add 0:08:43.440 --> 0:08:48.160 capacity whenever domains come up, or some other regulated industry 0:08:48.200 --> 0:08:52.240 where your edge is around understanding regulation, where bottom line 0:08:52.280 --> 0:08:53.520 is you probably hardly have. 0:08:53.840 --> 0:08:55.719 And it's then will ever be able to gain it. 0:08:56.400 --> 0:08:58.480 But then we try to focus more on the likes 0:08:58.520 --> 0:09:03.839 of you say technology like in the semiconductor space, or 0:09:03.880 --> 0:09:08.400 you can say consumer discrestionary or indostrial or something like that. 0:09:08.800 --> 0:09:12.400 The point being that if it's very very complex like biotech, 0:09:12.559 --> 0:09:14.440 we'll be very frank and say we do maybe not 0:09:14.559 --> 0:09:17.679 have the best toolbox and knowledge. I mean myself and 0:09:17.720 --> 0:09:19.800 most of my analyst in the team, we come with 0:09:20.240 --> 0:09:23.560 some kind of economic financial background. We do, of course 0:09:23.600 --> 0:09:27.480 in Polar have people with a biotechnology background, but we 0:09:27.520 --> 0:09:30.240 would probably be a little bit lighter to put it 0:09:30.559 --> 0:09:32.840 easily on that side, because there's a little bit out 0:09:32.840 --> 0:09:35.080 of our comfort zone. As to say, when it comes 0:09:35.120 --> 0:09:37.360 to the likes of utility tile, it comes whatever. We 0:09:37.400 --> 0:09:40.439 don't really think we cannot build an edge then be differentiated. 0:09:40.760 --> 0:09:43.640 So trying to find that combination where you think you 0:09:43.679 --> 0:09:48.320 can still be differentiated, but you with your toolbox have 0:09:48.400 --> 0:09:51.240 a chance to be a little bit more right in 0:09:51.360 --> 0:09:54.840 terms of direction and magnitude of these development versus the market, 0:09:54.840 --> 0:09:56.760 and you really try to put your effort in there. 0:09:56.800 --> 0:10:00.800 Acknowledging that finding alpha is dame heart these days, so 0:10:01.160 --> 0:10:03.440 that is where we try to find our niche areas 0:10:03.480 --> 0:10:04.199 and focused there. 0:10:04.800 --> 0:10:08.520 We have been kind of looking at you mentioned earnings 0:10:08.559 --> 0:10:11.559 and growth, at earnings estimates and growth. We've kind of 0:10:11.600 --> 0:10:13.920 been looking at consensus for this year, and you know, 0:10:14.000 --> 0:10:19.560 we're noticing a bit of growth inflection in Latin America 0:10:19.600 --> 0:10:23.280 and emerging Europe next year a while Asia growth still 0:10:23.320 --> 0:10:25.640 looks to be quite high, but it looks to be slowing. 0:10:25.960 --> 0:10:29.040 I'm just wondering, how are you thinking about the different 0:10:29.120 --> 0:10:31.120 em blocks this year? 0:10:33.520 --> 0:10:37.120 Again, we try as a starting point where we really. 0:10:38.360 --> 0:10:41.880 You can say going back to the question before, I mean, 0:10:41.920 --> 0:10:44.120 we do really kind of try to focus on these 0:10:44.160 --> 0:10:48.200 kind of unique growth areas and then I think whether 0:10:48.400 --> 0:10:53.720 it's it services or and then we'll say a fan 0:10:53.760 --> 0:10:56.160 of is the best company like a globe and which 0:10:56.200 --> 0:10:58.080 is a bit based out of Latin America, or do 0:10:58.120 --> 0:11:02.000 we find that it service company places like India or Vietnam, 0:11:02.520 --> 0:11:04.439 and then try try to to kind of understand the 0:11:04.520 --> 0:11:07.600 dynamics there. So clearly, for a number of the areas 0:11:07.640 --> 0:11:10.200 there is more like a global dynamics. And then of 0:11:10.240 --> 0:11:12.839 course for the one where there is a more kind 0:11:12.840 --> 0:11:15.960 of domestic driver, then it's more into the nitty greedy 0:11:16.000 --> 0:11:18.840 of the domestic than it is a SOT at the 0:11:18.880 --> 0:11:22.600 regional level, if I can put it that way, because 0:11:22.679 --> 0:11:25.880 that is very much how I think the emergent market 0:11:25.920 --> 0:11:30.480 as a class has been developing over the last decade. 0:11:30.960 --> 0:11:33.720 That we still like to talk a little bit about 0:11:33.760 --> 0:11:35.920 the regional blocks. And I'll be very frank and say, 0:11:35.960 --> 0:11:38.480 even our research structure is a little bit with analysts 0:11:38.480 --> 0:11:41.160 coming some region. But what we're also seeing there are 0:11:41.280 --> 0:11:45.679 increasingly huge differences whether you are in Asia and whether 0:11:45.720 --> 0:11:48.520 you talk India or you talk Korea. I mean the 0:11:48.600 --> 0:11:53.199 underlying dynamics there political growth wise, society wise, they are very, 0:11:53.280 --> 0:11:55.080 very different. And it's a bit the same with the 0:11:55.160 --> 0:11:57.920 likes of Latin America. I mean, we have seen again 0:11:58.200 --> 0:12:00.559 the difference between the likes of Brazil and Mexico, and 0:12:00.640 --> 0:12:05.320 now even in Argentina suddenly also changing a lot. So 0:12:05.520 --> 0:12:09.240 I'd probably say we are probably more when we take 0:12:09.320 --> 0:12:12.240 our more top down head on, we're probably a bit 0:12:12.320 --> 0:12:16.680 more on the countryside then we actually think about regions 0:12:16.679 --> 0:12:19.800 with it, if I can put it that way. We 0:12:19.920 --> 0:12:22.679 do though, also feel and I guess I'll be bad 0:12:22.720 --> 0:12:25.520 for I say, I do not have the hard evidence here, 0:12:25.679 --> 0:12:29.160 but my feeling is that we have over the years 0:12:29.360 --> 0:12:33.600 been getting a little bit more cheated by you can say, 0:12:33.720 --> 0:12:38.240 consensus growth numbers from cellside in Latin America. Then we 0:12:38.480 --> 0:12:40.920 probably feel has been the case in Asia. Not saying 0:12:40.920 --> 0:12:43.880 you cannot get cheated in Asia if you do go 0:12:43.960 --> 0:12:47.199 and look at these numbers, but I think there's probably 0:12:47.240 --> 0:12:49.840 a little bit more you can say, a sygnical element 0:12:49.960 --> 0:12:52.199 and a little bit more swing in something like the 0:12:52.520 --> 0:12:56.320 risk premiums that move there. So you can say from 0:12:56.400 --> 0:12:59.960 that perspective, smaller changes you can say let's my Marria 0:13:00.120 --> 0:13:03.520 can maybe looking slightly better than than Asia, that would 0:13:03.720 --> 0:13:06.719 to be framed not really at an early stage kind 0:13:06.720 --> 0:13:08.320 of be enough for us to think, oh, we really 0:13:08.360 --> 0:13:10.839 need to reassess the structure here. 0:13:12.480 --> 0:13:16.160 Okay, Yeah, totally understand your your point on you know, 0:13:16.440 --> 0:13:21.240 earning exstin is sometimes being cheated or or or not 0:13:21.240 --> 0:13:25.760 not not as accurate as we wish. Just getting back 0:13:26.080 --> 0:13:29.760 you mentioned you know you're more countries or you know, 0:13:29.800 --> 0:13:36.199 country specifics matter perhaps a bit more. One one country 0:13:36.280 --> 0:13:39.319 you didn't mention was China. Just wondering what are your 0:13:39.320 --> 0:13:43.240 thoughts on China going into this year? Can you know 0:13:43.320 --> 0:13:47.640 the domestic stimulus kind of offset the rising geo political tensions? 0:13:49.880 --> 0:13:52.520 There's no question. Uh, and that is what they call 0:13:52.600 --> 0:13:55.840 a good question. And uh and and and China is 0:13:55.880 --> 0:14:01.600 of course a very triggery one. I should mention that 0:14:01.960 --> 0:14:04.440 we even have a small officing in Shanghai, so we 0:14:04.480 --> 0:14:06.599 do have you can say, one of my analysts do 0:14:06.880 --> 0:14:09.600 sit in Shanghai. So we do generally feel we have 0:14:09.640 --> 0:14:13.480 a pretty decent understanding what's going on there. And I 0:14:13.520 --> 0:14:16.320 have most of myself been investing in China for many, 0:14:16.360 --> 0:14:19.560 many years. But there's no question in China is what 0:14:19.640 --> 0:14:22.120 you go call between a rock and a hard place. 0:14:22.480 --> 0:14:25.400 Right now, I think it's clear that you. 0:14:25.320 --> 0:14:25.800 Could call it. 0:14:25.840 --> 0:14:29.440 The business model for China are being a little bit 0:14:29.480 --> 0:14:32.440 caught out on the wrong foot now, and the question 0:14:32.640 --> 0:14:36.480 is how quickly can and will they kind of change 0:14:36.680 --> 0:14:43.520 the dynamics the solution we see for China. It's hard 0:14:43.760 --> 0:14:47.480 to land there, but I guess that's the only way 0:14:47.560 --> 0:14:50.760 China can go. So there's no question that as we 0:14:50.840 --> 0:14:54.240 see it, that we work a lot with us now, 0:14:54.240 --> 0:14:58.640 which we call a new multipolar world, and it isn't 0:14:58.800 --> 0:15:01.160 is that again, I've been doing emergent market investing for 0:15:01.200 --> 0:15:04.560 more than twenty years and there's no secret. At least 0:15:04.680 --> 0:15:09.240 up till two thousand and eighteen, take a gift emergent 0:15:09.320 --> 0:15:14.240 market and Asian investing. It was very very China biased. 0:15:14.480 --> 0:15:17.600 China heavy, I mean it, and you will see the 0:15:17.640 --> 0:15:20.960 benchmark wasting. China was so heavy, and yes that was 0:15:21.000 --> 0:15:22.880 also not only was there a lot of weight, a 0:15:22.880 --> 0:15:27.360 lot of companies, a lot of GDP growth, but there 0:15:27.400 --> 0:15:30.680 was also some quite amazing strong investment cases back there 0:15:30.680 --> 0:15:33.000 again think Tents and Alibaba. These was kind of the 0:15:33.080 --> 0:15:37.720 absolutely big darling names and the heavy names in the benchmark, 0:15:38.960 --> 0:15:41.040 and that was kind of driving it. And I think 0:15:41.080 --> 0:15:44.360 from twenty eighteen, when you could call the real kind 0:15:44.360 --> 0:15:47.480 of trade war started to kick out, you clearly start 0:15:47.520 --> 0:15:49.760 to see a change there. And when we talk about 0:15:50.000 --> 0:15:52.960 a multipolar world, we think that is something that are 0:15:53.000 --> 0:15:55.320 really going to accelerate over the next years and that 0:15:55.400 --> 0:15:58.680 will really transformed the narrative for emergent market over the 0:15:58.720 --> 0:16:02.040 coming decade. And put very simplistic, we do believe there's 0:16:02.080 --> 0:16:05.240 a very big you would call it negative delta to 0:16:05.320 --> 0:16:09.120 keep on using that word coming out of China in 0:16:09.160 --> 0:16:12.360 the form of FDI are not going into China, even 0:16:12.480 --> 0:16:15.520 Chinese own company are starting to invest outside of China, 0:16:15.920 --> 0:16:18.560 manufacturing capacity are moving and so on. And of course 0:16:18.560 --> 0:16:21.480 it's not China collapsing over night, but the direction of 0:16:21.520 --> 0:16:25.200 travel is very clear that that dominant manufacturing role is 0:16:25.240 --> 0:16:28.320 starting to come under pressure. And at the same time 0:16:28.440 --> 0:16:31.960 the domestic domain picture is very very weak. But you 0:16:31.960 --> 0:16:35.920 would say that negative delta coming out of China that 0:16:36.040 --> 0:16:38.760 is not going back to US or to eurofrom that matter, 0:16:38.800 --> 0:16:40.800 as we're see in it, we do believe that a 0:16:40.840 --> 0:16:44.240 lot of these new manufacturing hobs, they will move to 0:16:44.280 --> 0:16:48.280 the likes of India, Vietnam, Indonesia and Mexico and so on, 0:16:48.560 --> 0:16:51.880 and particular in the four countries are mentioned here, but 0:16:51.960 --> 0:16:56.160 particular the three as one. They coincide with already relative 0:16:56.240 --> 0:17:00.600 favorable demographics urbanization dynamics, and we do believe that create 0:17:00.720 --> 0:17:03.720 a pretty powerful kind of you can say, cocktail for 0:17:04.119 --> 0:17:08.639 growth to come and be more spread out. So we 0:17:08.720 --> 0:17:11.359 think in a way it is in many way again 0:17:11.400 --> 0:17:13.640 we are stock piggers, and of course we are very 0:17:13.880 --> 0:17:17.760 biased in our view, no secret there, but we think 0:17:17.840 --> 0:17:20.800 actually this new multipolar world and the narrative we see 0:17:20.840 --> 0:17:23.800 for emergent market over the next decade is actually really 0:17:23.800 --> 0:17:26.760 really bullish because I think, let's be frank, we all 0:17:26.840 --> 0:17:31.359 and we're probably guilty of underappreciating the political risk in 0:17:31.440 --> 0:17:35.119 China that end up being too much capital allocated into China, 0:17:35.600 --> 0:17:38.520 and suddenly that concentration risk, we suddenly saw the flip 0:17:38.560 --> 0:17:41.560 side of that. I think in a new multipolar world, besides, 0:17:41.600 --> 0:17:43.800 as stock piggers, we can hopefully find a lot of 0:17:43.960 --> 0:17:48.520 great return opportunities from these new manufacturing and consumption opportunities, 0:17:48.960 --> 0:17:51.520 but we can also spread our risks a lot better. 0:17:51.560 --> 0:17:55.240 We can diversify them on political system, on monetary cycles, 0:17:55.280 --> 0:17:58.159 and on investment cycle. So think if you are international 0:17:58.160 --> 0:18:01.440 and investor, I actually think that this is it feels 0:18:01.440 --> 0:18:03.320 a bit painful now when you look at the index 0:18:03.400 --> 0:18:06.439 performance that we've been seeing the last few years. And 0:18:06.480 --> 0:18:08.960 again I acknowledge that twenty twenty five there's a lot 0:18:08.960 --> 0:18:11.720 of moving parts. I'll be happy to elaborate on that, 0:18:12.160 --> 0:18:14.159 but I think if we allow ourself to keeck to 0:18:14.240 --> 0:18:16.920 look a few years ahead, I actually think the emergent 0:18:16.920 --> 0:18:20.199 market universe actually has a lot to offer and it 0:18:20.240 --> 0:18:23.080 will come in a much better repping, if I can 0:18:23.160 --> 0:18:25.520 use that word this time around, the way we can 0:18:25.520 --> 0:18:29.040 diversify and spread our risk. So for that reason, I 0:18:29.080 --> 0:18:33.359 do remain quite upbeat about the opportunities in emergent market 0:18:33.400 --> 0:18:36.560 for this multipolar development. And as I say, we are 0:18:36.600 --> 0:18:41.080 significant underweight in China, and I think China's a role 0:18:41.720 --> 0:18:44.720 in this new multipolar world. And let me be very frank, 0:18:44.760 --> 0:18:46.959 we are not forecast in the collapse in China anything 0:18:47.040 --> 0:18:50.959 like that, but it's clearly you can say these deflastionary trends, 0:18:51.000 --> 0:18:53.359 they are very strong and it could easily be some 0:18:53.560 --> 0:18:56.760 form of a Japanization kind of version of China we're 0:18:56.800 --> 0:18:59.840 witnessing now, though admittedly at a lot lower GDP level 0:19:00.040 --> 0:19:03.560 capita than what we saw equivalent of Japan back in 0:19:03.600 --> 0:19:08.040 the late eighties or early nineties. But I think the 0:19:08.080 --> 0:19:14.040 future for China that is DRIMA as the exporter of 0:19:14.440 --> 0:19:18.159 capital goods and consumer goods to you can say, the 0:19:18.200 --> 0:19:20.760 rest of the emergent market. Yes, I think the export 0:19:20.800 --> 0:19:22.840 growth to the likes of viewers in Europe, we should 0:19:22.880 --> 0:19:24.800 not put our hopes too high there and if anything, 0:19:24.800 --> 0:19:27.520 they'll probably deteriorate. But I mean it's not that long 0:19:27.560 --> 0:19:30.520 ago since I was traveling a lot around in Asia, 0:19:30.520 --> 0:19:33.240 as I do quite regular, and when you are around 0:19:33.240 --> 0:19:36.120 in places like Southeast Asia, you are really seeing these 0:19:36.359 --> 0:19:40.040 China products, whether it's mobile phones or its car and 0:19:40.080 --> 0:19:43.359 they are really being adopted by the consumer there. And 0:19:43.400 --> 0:19:45.399 I think that is really the role. And in a way, 0:19:45.600 --> 0:19:50.200 I think that if you are producing iPhones at razor 0:19:50.280 --> 0:19:54.280 things margin versus you are exporting your own mobile phone 0:19:54.440 --> 0:19:56.520 brands where you control the IP and you get a 0:19:56.560 --> 0:20:00.440 lot higher margin that margin, uplift can actually come say 0:20:00.800 --> 0:20:04.119 a lot of volume deslis. So I think that I 0:20:04.160 --> 0:20:08.000 still think that the strategy China are on it in 0:20:08.080 --> 0:20:10.240 a kind of makes sense to try to go more 0:20:10.320 --> 0:20:13.160 higher value added, really control the brand, and then really 0:20:13.160 --> 0:20:17.960 try to drive export markets outside the US and Europe. 0:20:18.600 --> 0:20:21.040 Will it be enough for China? And I guess that 0:20:21.160 --> 0:20:23.679 is the big question, and I do probably believe that 0:20:23.720 --> 0:20:26.640 it will not be fully enough. It can keep them 0:20:26.640 --> 0:20:29.600 afloat if I can use that ext question, But you 0:20:29.640 --> 0:20:32.440 do also need to get some form of domestic demand. 0:20:32.560 --> 0:20:38.360 And I only really see the domestic domain story comeback 0:20:38.800 --> 0:20:41.920 when you start to get some comfort back into the 0:20:42.080 --> 0:20:46.920 Chinese society, and that goes around mister Shei and his policies, 0:20:47.400 --> 0:20:50.520 and it's clearly also go particular in connection with that 0:20:51.040 --> 0:20:53.439 what the China US relationship will be. As saying, if 0:20:53.480 --> 0:20:55.359 you are a Chinese consumer and you know there is 0:20:55.480 --> 0:20:59.560 not a big social network catching you, and you are agent, 0:20:59.760 --> 0:21:02.920 and your young child that was supposed to really take 0:21:02.960 --> 0:21:05.040 care of you when they grow up and get education 0:21:05.520 --> 0:21:09.520 fighting with really getting a good job, then your propensity 0:21:09.560 --> 0:21:13.480 to consume is clearly pretty low, and it will remain 0:21:13.560 --> 0:21:15.240 so in particularly if you have a feeling that you're 0:21:15.240 --> 0:21:17.760 about to get a trade war or other form of 0:21:17.760 --> 0:21:20.320 of tension that can cost the job and so on. 0:21:20.720 --> 0:21:23.600 So I think until we get some form of clarity 0:21:23.760 --> 0:21:27.320 on policies, I think that the consumption will still be 0:21:27.359 --> 0:21:30.879 pretty suppressed in China. But I definitely think again if 0:21:31.000 --> 0:21:33.440 once you try to say what is really the task there? 0:21:34.200 --> 0:21:37.320 In my view, it is really for the leadership in 0:21:37.440 --> 0:21:41.320 China to get some form of really clear deal and 0:21:41.400 --> 0:21:45.199 agreement with yous about the role and then you can 0:21:45.240 --> 0:21:47.800 actually go back and start to fix your economy. I 0:21:47.840 --> 0:21:50.000 find it hard to believe you can fix your economy 0:21:50.440 --> 0:21:54.240 before there's some clarity on the international scene. Even China 0:21:54.400 --> 0:21:57.199 is in many ways a big domestic economy, it is 0:21:57.240 --> 0:21:59.879