WEBVTT - Matthews’ Taylor on AI in Asian Emerging Markets 0:00:11.000 --> 0:00:14.200 Welcome to Inside Active, a podcast about active managers that 0:00:14.240 --> 0:00:17.160 goes beyond sound bites and headlines and looks deeper into 0:00:17.200 --> 0:00:22.599 their processes, challenges and philosophies and security selection. I'm David Cohne, 0:00:22.600 --> 0:00:25.640 i lead mutual fund and Active Research at Bloomberg Intelligence. 0:00:25.960 --> 0:00:29.440 Today my co host is Marvin Chen, Senior Asia Equity 0:00:29.480 --> 0:00:32.800 strategist at Bloomberg Intelligence. Marvin, thank you for joining me 0:00:32.840 --> 0:00:33.800 today as my co host. 0:00:34.120 --> 0:00:34.800 Thank you, David. 0:00:35.080 --> 0:00:38.240 So, Marvin, can you tell our listeners about the BI 0:00:38.479 --> 0:00:42.880 Emerging Markets Equity Scorecard and what countries are currently on top? 0:00:43.240 --> 0:00:47.120 Yeah. The Emerging Market Equity Scorecard is a scorecard where 0:00:47.159 --> 0:00:51.120 you rank very emerging markets across various factors such as 0:00:51.479 --> 0:00:56.600 prize performance, breadth, as well as fundamentals and currency and 0:00:57.000 --> 0:00:58.080 commodity exposure. 0:00:58.240 --> 0:00:59.960 We do this review quarterly. 0:00:59.600 --> 0:01:03.920 And currently Vietnam, while technically still not an emerging market yet, 0:01:04.000 --> 0:01:07.200 sits the top of our scorecard as it ranks well 0:01:07.840 --> 0:01:11.280 versus many of the emerging markets. But the broader message 0:01:11.280 --> 0:01:13.720 for the scorecard is that you know, investors should focus 0:01:14.160 --> 0:01:17.920 stay focused on Asia, with Turkey being the only non 0:01:17.959 --> 0:01:23.520 Asian country within the top echelon of our scorecard. Amongst 0:01:23.520 --> 0:01:29.959 major markets, Korea sits pretty well and the first half 0:01:30.120 --> 0:01:33.840 outperformers such as India and Taiwan have slipped a few 0:01:33.880 --> 0:01:38.040 notches due to valuation concerns. China is still at the 0:01:38.040 --> 0:01:41.240 bottomwear scorecard. It has moved up a few slots, but 0:01:42.120 --> 0:01:45.880 challenges are There's still challenges for the outlook and more 0:01:45.880 --> 0:01:47.640 policy support is needed there. 0:01:48.440 --> 0:01:52.040 Great well, speaking of emerging markets, I'd like to welcome 0:01:52.240 --> 0:01:56.800 Sean Taylor, chief investment officer of Matthews Asia and portfolio 0:01:56.840 --> 0:02:00.680 manager for the firm specific Tiger Fund specific your active 0:02:00.760 --> 0:02:04.200 ETF for Emerging Markets Equity Fund and the ETF as 0:02:04.200 --> 0:02:07.480 well in the Emerging markets ex China Active ETF. Thank 0:02:07.520 --> 0:02:09.040 you so much for joining the podcast. 0:02:09.120 --> 0:02:11.160 John Pleasure, thank you for being invited. 0:02:11.280 --> 0:02:13.160 So I'd like to begin by asking you how you 0:02:13.240 --> 0:02:14.360 got your start in the business. 0:02:14.560 --> 0:02:20.360 Actually, I originally was in the military, having been brought 0:02:20.440 --> 0:02:26.360 up abroad, and when I went to the business world 0:02:26.480 --> 0:02:30.600 after business school, I was very interested in working in 0:02:30.600 --> 0:02:33.960 in what I knew about, which was, you know, anything 0:02:34.600 --> 0:02:40.240 non developed Middle East, Asia, Eastern Europe, and got the 0:02:40.240 --> 0:02:43.720 opportunity to go and work on an Asian desk at 0:02:43.800 --> 0:02:46.799 James Capele, who were at the time one of the 0:02:47.600 --> 0:02:50.920 the main sort of Asian brokers, and I sort of 0:02:50.919 --> 0:02:53.239 got in that way, and you know, it was very 0:02:53.280 --> 0:02:55.400 fortunate that a lot of places that I had lived 0:02:55.440 --> 0:02:58.600 in suddenly became markets. A bit like you know, talking 0:02:58.600 --> 0:03:02.360 about Vietnam Vy going from not being an emerging market 0:03:02.400 --> 0:03:05.880 to being one in the future. I was sort of 0:03:06.520 --> 0:03:09.360 you know, they're in the Middle East and in Eastern Europe, 0:03:09.680 --> 0:03:10.960 which was which was very interesting. 0:03:11.160 --> 0:03:13.600 Nice. Well, you know, one of the things we wanted 0:03:13.600 --> 0:03:15.880 to talk about, or at least you know, definitely hear more about, 0:03:15.919 --> 0:03:19.679 is the Matthews Emerging Markets Equity Active ETF, which is 0:03:19.720 --> 0:03:23.320 the ticker simill em. Can you tell us the investment 0:03:23.360 --> 0:03:24.480 process for this fund. 0:03:25.360 --> 0:03:28.720 Yeah, we've really got four stages of it. The first 0:03:28.760 --> 0:03:31.320 principle is we think that the value of an equity 0:03:31.400 --> 0:03:34.359 or the value of an equity index is a simple 0:03:34.400 --> 0:03:41.400 formula of earnings plus a dividend translated into US dollars, 0:03:42.120 --> 0:03:45.480 and then we give it a p rerating or a 0:03:45.560 --> 0:03:49.200 D rating. You know, we have the four stage process. One, 0:03:49.240 --> 0:03:52.440 we think countries matter, so we have a country target 0:03:52.680 --> 0:03:57.520 based on that formula for every market. We then rank 0:03:57.600 --> 0:04:03.760 those countries. We take an account volatility, so we get 0:04:03.800 --> 0:04:06.480 you know, earning what's the best earnings growth, you know, 0:04:06.520 --> 0:04:09.040 what's what's in the price of that earnings growth, and 0:04:09.040 --> 0:04:11.840 we come up with a series of over neutral and underweights. 0:04:12.720 --> 0:04:16.360 And then from the bottom up basis, we're very fortunate 0:04:16.400 --> 0:04:19.880 to Matthews to have a team of country managers, people 0:04:19.880 --> 0:04:22.040 that are focused were you know, we run a lot 0:04:22.040 --> 0:04:27.160 of single country funds and ETFs that feed up into that, 0:04:27.240 --> 0:04:30.160 and so our country teams give us the best ideas 0:04:30.920 --> 0:04:34.880 and then the fund managers based on the fund put 0:04:34.920 --> 0:04:38.800 the portfolio construction to work. We use a system called 0:04:38.880 --> 0:04:42.480 marginal contribution of active risk, so we really beat to 0:04:42.520 --> 0:04:46.680 adjust everything to make sure that we were taking you 0:04:47.400 --> 0:04:53.680 intended positioning and we don't have any unintended overweights and underweights, 0:04:55.160 --> 0:04:59.000 and that sets the sizes of the overweights and underweights, 0:04:59.000 --> 0:05:03.800 so the country level at the stock level, and that 0:05:03.920 --> 0:05:05.960 enables us to dial up the beta and dial down 0:05:06.000 --> 0:05:09.880 the beta. And then finally we have an ongoing monitoring 0:05:09.920 --> 0:05:15.760 process that happens and that that cycle that's that cycle continues. 0:05:16.480 --> 0:05:19.560 Now we're probably a slightly differentiated thinking that countries matter, 0:05:20.240 --> 0:05:22.520 but you know, if you just look at the facts 0:05:22.800 --> 0:05:25.960 in an example this year, that the outperformance of Asia 0:05:26.040 --> 0:05:30.360 relative to to Latin America, the outperformance of India relative 0:05:30.400 --> 0:05:34.160 to China, the outperformance even in Latin America of Brazil 0:05:34.680 --> 0:05:37.880 relative to Mexico. So at the end of the day, 0:05:37.920 --> 0:05:40.359 we're picking stocks, but we have this country framework that 0:05:40.800 --> 0:05:45.839 enables us to hopefully damp and risk or take the 0:05:45.839 --> 0:05:48.400 opportunity of whether it's a you know, a good a 0:05:48.440 --> 0:05:51.240 good country story. For instance, you know, we do across 0:05:51.720 --> 0:05:55.839 many strategies have a non index overweight to Vietnam because 0:05:55.880 --> 0:05:57.440 you know, we like the growth story there. In the 0:05:57.520 --> 0:06:00.000 valuations we think of a lot more upside. 0:06:00.279 --> 0:06:02.800 So you know, you mentioned looking at countries and so 0:06:02.839 --> 0:06:06.240 it's kind of top down. But when you're looking at 0:06:06.320 --> 0:06:10.440 individual stocks, you know, in terms of fundamental analysis, what 0:06:10.440 --> 0:06:13.000 do you look for, for instance, in company balance sheets? 0:06:14.560 --> 0:06:18.120 Yeah, you know, obviously depends on the growth state of 0:06:18.160 --> 0:06:22.680 the company, But what we look at is whether the 0:06:22.720 --> 0:06:26.560 balance sheet has enough the ability to fund that country 0:06:26.600 --> 0:06:28.840 that company going forward that it doesn't need to go 0:06:28.960 --> 0:06:33.000 for external finance. So either if it's a sort of 0:06:33.040 --> 0:06:36.320 newer growth yer company, then it has the sources in 0:06:36.360 --> 0:06:38.120 place that it knows where it's next growth is going 0:06:38.160 --> 0:06:40.800 to come from, so that we have going down the 0:06:40.839 --> 0:06:44.320 road to sustainable cash flow. And then those companies that 0:06:44.320 --> 0:06:46.560 are mature that you know that the balance sheet is 0:06:46.600 --> 0:06:48.480 good and that we have good cash flow. We think 0:06:48.520 --> 0:06:52.839 cashflow goes into earnings is the most important thing because 0:06:52.839 --> 0:06:55.320 what we're really looking for is the sustainability of earnings 0:06:55.320 --> 0:06:58.880 and the sustainability of dividend streams within that. 0:07:01.000 --> 0:07:03.920 What about more on the qualitative side, do you look 0:07:03.960 --> 0:07:07.400 at management teams? You know kind of how do you 0:07:07.440 --> 0:07:08.760 evaluate them? 0:07:09.279 --> 0:07:12.000 Yeah, So one thing that we we do, and we've 0:07:12.040 --> 0:07:14.320 it's always been the DNA of Matthews over the last 0:07:14.320 --> 0:07:17.720 thirty years, is being on the ground. So we have 0:07:18.040 --> 0:07:20.680 part of the team in Hong Kong, part of the 0:07:20.720 --> 0:07:23.480 team in San Francisco, and you know, the San Francisco 0:07:23.600 --> 0:07:26.680 side is very driven by what's happening in global tech 0:07:27.120 --> 0:07:31.760 and using that knowledge base to you know, look at Asia. 0:07:31.960 --> 0:07:33.920 You know, where are those trends being seen in Asia? 0:07:34.000 --> 0:07:37.280 You know, for instance, the whole AI build, how that's 0:07:37.280 --> 0:07:40.000 seen in the supply chain in areas and then in 0:07:40.640 --> 0:07:43.560 Hong Kong, you know where we also cover maybe couple 0:07:43.600 --> 0:07:46.600 a lot of the Asian markets. From here, it's really 0:07:46.640 --> 0:07:51.920 been on the ground visiting companies. We have a huge 0:07:51.920 --> 0:07:56.920 amount of fund managers traveling you know constantly and seeing companies, 0:07:56.920 --> 0:08:02.400 and we place a really big emphasis on meeting management, 0:08:02.720 --> 0:08:04.960 you know, both in the offices or on the ground 0:08:05.160 --> 0:08:10.000 seeing the competitors and also with our you know esg team, 0:08:10.080 --> 0:08:13.120 we do a lot of engagement with companies. So we 0:08:13.520 --> 0:08:15.480 write to them on factors and we go and see 0:08:15.520 --> 0:08:17.480 them and we attend a GMS and we think that's 0:08:17.560 --> 0:08:20.720 very very important because although we have this country framework 0:08:20.720 --> 0:08:23.360 where we think we can add value at a country 0:08:23.440 --> 0:08:27.000 level by selecting countries, at the end of the day 0:08:27.040 --> 0:08:29.720 we are buying companies and so we have to get 0:08:29.760 --> 0:08:31.760 that balance. You know, we're really looking for the right 0:08:31.840 --> 0:08:35.000 stop for the environment. But it's very important what the 0:08:35.920 --> 0:08:38.400 what the management is up to. I mean, we could 0:08:38.520 --> 0:08:40.920 go to a management that we've seen as you know, 0:08:41.040 --> 0:08:44.280 not up to standard that we think is changing. So 0:08:44.360 --> 0:08:46.800 you know, one of the engagement parts of engagement is 0:08:46.800 --> 0:08:49.040 is you know, where we're seeing companies that are turnaround 0:08:49.440 --> 0:08:53.359 where they are pricing in you know, an old situation, 0:08:53.480 --> 0:08:56.199 but we do believe that you know, things are changing 0:08:56.600 --> 0:08:59.719 and that change will affect one of the valuation that 0:08:59.760 --> 0:09:01.719 people will pay for that company. But you know, more 0:09:01.720 --> 0:09:04.719 importantly the fundamentals, the cash flows. Maybe they're getting rid 0:09:04.720 --> 0:09:09.720 of you know, non core activities, they're becoming more more transparent. 0:09:09.760 --> 0:09:12.840 That dividend policy, which could have been weak, is getting 0:09:12.960 --> 0:09:17.160 much stronger. They're more aware about capital management. You know, 0:09:17.200 --> 0:09:19.840 if we see situations like that, then that's a perfect 0:09:20.400 --> 0:09:22.600 story that we like to look for. That's sort of 0:09:22.679 --> 0:09:24.720 you know, I suppose a turnaround story. 0:09:24.920 --> 0:09:28.360 Yeah, Sean, you mentioned AI and tech. I just kind 0:09:28.360 --> 0:09:30.960 of wanted to go into the themes you know, around 0:09:31.240 --> 0:09:33.960 markets this year. You know, AI has been a big 0:09:34.000 --> 0:09:37.280 theme for Asia. You know, Taiwan has outperformed on the 0:09:37.320 --> 0:09:42.160 back of this, but now we're seeing some volatility. What's 0:09:42.240 --> 0:09:44.680 review Is it, you know, time to rotate out of 0:09:44.720 --> 0:09:47.520 this theme or does this have more legs to go 0:09:48.280 --> 0:09:51.600 room to run? And you know is do you think 0:09:51.679 --> 0:09:54.800 Southeast Asia is a shelter for kind of this tech 0:09:54.920 --> 0:09:57.760 volatility that we've seen over the past month or so. 0:09:58.920 --> 0:10:02.080 Yeah, I think on the first question on AI, I 0:10:02.080 --> 0:10:03.960 mean AI, I think is going to be a really 0:10:04.000 --> 0:10:08.680 cool driver of Asia and emerging markets going forward, you know, 0:10:08.760 --> 0:10:10.600 because I think at the moment, you know, it's all 0:10:10.640 --> 0:10:13.640 about Ai going onto the computer and then it will 0:10:13.640 --> 0:10:17.080 be going on to the hand said the humanoid. The 0:10:17.120 --> 0:10:20.720 supply chain in particularly in Taiwan and even certain companies 0:10:20.720 --> 0:10:24.640 in Malaysia, certain companies in Vietnam. You know, it's growing, 0:10:24.640 --> 0:10:26.280 and the growth is you know, the capex is there 0:10:26.280 --> 0:10:28.760 and the growth is there. And then you've also got 0:10:28.800 --> 0:10:32.600 the semi side as well. So obviously career much more 0:10:32.600 --> 0:10:37.240 affected by the semiconductor side. Short term, there is a pause. 0:10:37.400 --> 0:10:40.760 I think, you know, we are seeing much more selectivity. 0:10:41.120 --> 0:10:45.720 So actually we've lightened positions in Taiwan. We've really lightened 0:10:45.760 --> 0:10:48.920 positions in career, much more on the domestic side of career. 0:10:49.800 --> 0:10:51.960 But in the longer run, you know, we are still 0:10:52.080 --> 0:10:55.240 invested in certain Taiwanese companies, but we've been a lot 0:10:55.280 --> 0:11:00.319 more STOP companies. Specific it's a very alpha orientated because 0:11:00.320 --> 0:11:03.760 we do think that you know, some stop's got overvalued 0:11:03.800 --> 0:11:06.720 in the hype, and probably the earnings will disappoint, but 0:11:06.760 --> 0:11:08.440 certainly the theme is there, and I think it's a 0:11:08.480 --> 0:11:12.160 really important I think it's a really important driver for 0:11:12.240 --> 0:11:14.960 Asia because you know, in the last five years. Probably 0:11:15.000 --> 0:11:19.840 the debate has always been India's expensive, but we like it, 0:11:19.880 --> 0:11:23.320 and the earnings are going China's cheap, but the earnings 0:11:23.320 --> 0:11:25.960 aren't coming through. But actually there's so much more to 0:11:26.040 --> 0:11:31.440 em and you know, the sort of the extra ai 0:11:31.960 --> 0:11:36.079 the tech supply chain in North Asia is very very important. 0:11:36.080 --> 0:11:37.880 I think it's gonna be a big driver of markets 0:11:37.920 --> 0:11:41.559 going forward. And also actually the domestic demand story and 0:11:41.600 --> 0:11:44.000 the sort of value up story and career has worked 0:11:44.000 --> 0:11:49.520 pretty well. But Asian is probably my favorite place to 0:11:49.600 --> 0:11:52.360 invest at the moment, and for a number of reasons. 0:11:52.360 --> 0:11:56.679 One is it's always relative. You know, even China looks 0:11:56.720 --> 0:12:00.480 relatively better when other markets don't look as good because 0:12:00.480 --> 0:12:03.160 they've worked and China's still been a laggard, but Asiyan 0:12:03.960 --> 0:12:08.439 has been a laggard. It's been a laggard because rates 0:12:08.440 --> 0:12:11.760 in some markets have had to go up during this 0:12:11.760 --> 0:12:16.959 this year, particularly Indonesia. The growth is coming through and 0:12:17.200 --> 0:12:21.520 it will be the main beneficiary of interest rate policy 0:12:21.559 --> 0:12:26.839 easing in the US. It's cheap, it's under owned, and 0:12:27.120 --> 0:12:31.400 so you know it deserves a place on its own merit. 0:12:31.520 --> 0:12:34.839 But it's even more interesting now where you know, we've 0:12:34.880 --> 0:12:38.720 been taking money, taking profits from the North Asian area 0:12:38.760 --> 0:12:43.240 and India, you know, is it's still a very solid market, 0:12:43.240 --> 0:12:47.080 but it's looking quite expensive. You know, it's stead it's 0:12:47.120 --> 0:12:48.880 still steadily going up, but you can't put all your 0:12:48.880 --> 0:12:50.839 money in India in an emerging market or an asient 0:12:50.840 --> 0:12:53.200 fund at the moment. So it's a great, great balance. 0:12:53.240 --> 0:12:59.480 And within Asian Indonesia our favorite index country, and that's 0:12:59.480 --> 0:13:01.920 probably the most sensitive to rates coming up. It's had 0:13:01.960 --> 0:13:06.440 a little bit of a sort of policy vacuum because 0:13:06.480 --> 0:13:11.920 of the handover from Jockovy to Provoa and that the 0:13:11.920 --> 0:13:15.840 new president will be he will take over in October, 0:13:15.960 --> 0:13:18.400 and so people are sort of wasting the cabinet and 0:13:18.840 --> 0:13:23.720 you know the direction there, so that might cause a 0:13:23.720 --> 0:13:26.440 bit of volatility, but you know, the growth is growth 0:13:26.600 --> 0:13:29.439 story is very good. Rates will help that growth story. 0:13:29.800 --> 0:13:34.400 Vietnam and as I mentioned earlier, remains our favorite Asian market, 0:13:34.400 --> 0:13:38.160 but isn't in the index yet, so it depends on 0:13:38.200 --> 0:13:41.440 the degree of how much we have invested in in ETFs. 0:13:42.679 --> 0:13:45.000 And then Philippines I think is one behind it is 0:13:45.360 --> 0:13:48.800 it's a bit less liquid, but it's becoming more interesting growth, 0:13:49.000 --> 0:13:52.319 very cheap valuations, growth picking up Malayser has been a 0:13:52.400 --> 0:13:54.800 very good story. It's already done pretty well this year, 0:13:55.080 --> 0:13:57.000 so we're a little bit more selective there, but we 0:13:57.040 --> 0:14:01.280 still like the market. And then Thailand, and actually Thailand's 0:14:01.280 --> 0:14:05.120 had a pretty good run but having underperformed for a while, 0:14:05.440 --> 0:14:08.240 but it was a very sudden movement when we had 0:14:08.520 --> 0:14:11.880 a change in politics. So we we're a bit worried 0:14:11.880 --> 0:14:15.040 about the growth in Thailand. Still it's not really coming through, 0:14:15.480 --> 0:14:18.520 but we're just you know, really seeing how this political 0:14:18.600 --> 0:14:23.960 change will affect that growth there. So that's probably the 0:14:24.000 --> 0:14:25.480 market we're less convinced about. 0:14:27.360 --> 0:14:30.800 I know, Marvin's got more questions relating to countries and 0:14:31.240 --> 0:14:33.080 things happening, but I just wanted to have one more 0:14:33.120 --> 0:14:36.400 follow up. You mentioned valuations, you know, as part of 0:14:36.520 --> 0:14:40.680 the process, and in you know, the last question, I 0:14:40.720 --> 0:14:42.640 guess if you could dig deeper a little bit into 0:14:42.720 --> 0:14:46.239 valuations as you know, what do you look at specifically 0:14:46.280 --> 0:14:49.000 and you know, does it help when you're determined to 0:14:49.360 --> 0:14:51.040 you know, decide to sell the position. 0:14:52.840 --> 0:14:55.760 Yeah, Well, we target price everything. We target price and index, 0:14:56.400 --> 0:14:59.160 so we're not really top down investors in a way 0:14:59.160 --> 0:15:01.360 that we just set t targets for country indexes. So 0:15:01.400 --> 0:15:04.640 we will take MSCI India, which is essentially a collection 0:15:04.720 --> 0:15:07.040 of all the earnings for those companies that are in 0:15:07.160 --> 0:15:10.280 MSCI India and then all the valuations, and we set 0:15:10.400 --> 0:15:13.640 targets at a country level, and we set every stock 0:15:13.680 --> 0:15:16.840 we put in the portfolio, we set a target for 0:15:17.880 --> 0:15:20.760 on a valuation and an earning spaces, and we track 0:15:20.800 --> 0:15:24.360 those earnings all the time. It's very easy to track 0:15:24.400 --> 0:15:27.080 earning's upgrades and earnings down grades, and that can obviously 0:15:27.280 --> 0:15:29.960 sort of adjust. So you know, when we start to 0:15:30.120 --> 0:15:34.640 reach our target prices, then that is a warning point. 0:15:34.920 --> 0:15:37.120 So when we would change and now then it depends 0:15:37.120 --> 0:15:40.880 obviously on the relative illness of how that target price 0:15:40.920 --> 0:15:43.360 is relative to everything else in your portfolio and other 0:15:43.400 --> 0:15:47.000 ideas coming in. But we have a very disciplined approach 0:15:47.080 --> 0:15:48.960 on that. I mean, I'll give you an example. At 0:15:48.960 --> 0:15:52.800 the beginning of the year, we increased our having been 0:15:52.880 --> 0:15:55.640 very underway China. We increase positions in the end of 0:15:55.760 --> 0:16:01.120 January to China because the market had really underperformed and 0:16:01.160 --> 0:16:03.600 it was eight point five times earnings, and we thought 0:16:03.600 --> 0:16:06.360 that there was sort of better news coming out from 0:16:06.400 --> 0:16:09.360 the government property and actually the larger stocks in the 0:16:09.880 --> 0:16:12.640 in the index when talking to the companies were you know, 0:16:13.360 --> 0:16:16.920 we're going to have less subsidies. They were promising more 0:16:16.920 --> 0:16:20.200 capital management in terms of higher paybacks, buybacks, and that 0:16:20.280 --> 0:16:23.360 happened actually, and some of the larger stocks have have 0:16:23.440 --> 0:16:28.040 done pretty well. We increased our positions there. But then 0:16:28.640 --> 0:16:30.720 by the middle of May, the market had gone to 0:16:30.760 --> 0:16:33.800 eleven and a half time's earnings, and we thought, given 0:16:33.800 --> 0:16:36.680 that we hadn't seen that much of an economic recovery, 0:16:37.960 --> 0:16:39.760 a lot of good news was priced in, so we 0:16:39.880 --> 0:16:44.920 lightened up those positions, and you know, so that it 0:16:44.960 --> 0:16:46.720 made it May, It does make a big difference. And 0:16:46.760 --> 0:16:49.520 then when you have you know, on a on a 0:16:49.640 --> 0:16:51.880 change of government for instance. I mean we went into 0:16:51.880 --> 0:16:53.600 the beginning of the year a bit more cautious on 0:16:53.680 --> 0:16:57.600 Mexico on valuations. Market was pricing in a very good 0:16:57.600 --> 0:16:59.760 situation and we knew there was some election coming up. 0:17:00.160 --> 0:17:01.960 But when the election came up, and you know, it 0:17:02.000 --> 0:17:05.560 was obviously unfriendly to that, we thought to investors we 0:17:05.880 --> 0:17:09.159 had to assign a lower pe for Mexico, you know, 0:17:09.359 --> 0:17:12.840 depending on because of that political risk. On the other hand, 0:17:12.920 --> 0:17:15.880 Brazil went down almost to six and a half seven 0:17:15.920 --> 0:17:19.720 times earnings, with the sort of news on Mexico where 0:17:19.720 --> 0:17:22.600 actually the situation wasn't as bad, and we took that 0:17:22.680 --> 0:17:26.520 as an opportunity to increase our Brazilian exposure. And the 0:17:26.560 --> 0:17:30.320 companies know that we had met on in Brazil. We're 0:17:30.320 --> 0:17:33.560 not giving the same negativeness as the market, and so 0:17:33.600 --> 0:17:35.280 we just sort there's a good upside there in our 0:17:35.280 --> 0:17:37.919 target price that we weren't expecting Brazil to go back 0:17:37.960 --> 0:17:40.400 to ten eleven times earnings, but certainly could go back 0:17:40.720 --> 0:17:42.880 to sort of eight eight and a half times earnings. 0:17:43.359 --> 0:17:48.920 And so that valuation is used really as a as 0:17:48.960 --> 0:17:54.240 a reward risk tool, and it just it just sort 0:17:54.280 --> 0:17:56.000 of tries to keep you safe. You look at it 0:17:56.000 --> 0:17:59.119 every day, say what, what's what's priced? In Valuations alone 0:17:59.160 --> 0:18:03.399 aren't aren't aren't a catalyst, but they are definitely a level. 0:18:04.160 --> 0:18:06.600 You know, for instance, in China at the moment, you know, 0:18:08.160 --> 0:18:11.440 the valuation of China is at eight point seven times 0:18:11.480 --> 0:18:15.520 I think in the MSCI China, but that is you know, 0:18:15.600 --> 0:18:19.400 looking at an earnings growth of about fourteen percent. Now, 0:18:19.440 --> 0:18:22.199 given the macro data that's come through, you've seen a 0:18:22.200 --> 0:18:25.080 couple of seal side houses in the last twenty four 0:18:25.119 --> 0:18:29.080 hours take the China GDP number down. You know, you 0:18:29.160 --> 0:18:32.320 could say that, you know, if that if the fourteen 0:18:32.359 --> 0:18:35.480 percent growth of the consensus expecting was taken down to 0:18:36.240 --> 0:18:40.080 six or seven, then obviously China's trading on eleven times 0:18:40.280 --> 0:18:42.919 and so isn't so cheap. So you really have to 0:18:43.520 --> 0:18:46.879 you have to balance the valuations with what's happening on 0:18:46.920 --> 0:18:47.960 the earning side. 0:18:49.880 --> 0:18:53.080 Yeah, for China, you know, you after that rally we 0:18:53.119 --> 0:18:55.720 saw earlier in this year, we're really back at square one, 0:18:55.880 --> 0:18:59.440 you know, back at the eight nine times earnings level. 0:18:59.680 --> 0:19:02.719 And you're right, I agree, it all comes down to catalysts. 0:19:02.920 --> 0:19:05.320 Do do you guys see any catalysts on the horizon 0:19:05.359 --> 0:19:05.960 for China. 0:19:07.320 --> 0:19:10.879 Look at the moment, we're focusing really on what are 0:19:10.880 --> 0:19:14.159 the winners and losers from the situation in China, And 0:19:14.200 --> 0:19:16.119 there are clear winners at a stock level, and there 0:19:16.119 --> 0:19:19.320 are clear losers. They were pretty cautious on consumption. But 0:19:19.400 --> 0:19:21.800 some of the some of the sort of e commerce 0:19:21.800 --> 0:19:28.240 companies of the capital management are producing better earnings and 0:19:28.280 --> 0:19:32.000 so actually within the earnings changes in China, there is 0:19:32.240 --> 0:19:35.560 huge differentiation and that gives us a good opportunity being 0:19:35.560 --> 0:19:40.879 on the ground. I think, you know, at the moment, 0:19:41.080 --> 0:19:45.960 the government is probably a little bit more prepared to 0:19:46.000 --> 0:19:51.880 see the situation declining because the word of deflation has 0:19:51.920 --> 0:19:54.840 been sort of put up to the party and that 0:19:54.840 --> 0:19:57.679 that's always a scary word. But I do think the 0:19:57.760 --> 0:19:59.840 catalysts will take time. So I do think there will 0:19:59.840 --> 0:20:03.240 be more support on the property side for China. I 0:20:03.240 --> 0:20:06.560 do think we'll get more support on the demand side, 0:20:07.320 --> 0:20:09.320 but I do think it will take time, so I 0:20:09.400 --> 0:20:15.520 do not see an immediate catalyst. We also have the 0:20:15.520 --> 0:20:19.679 presidential election happening in the US, which you depending on 0:20:19.760 --> 0:20:25.680 which party wins, could affect you know, the economic situation 0:20:25.760 --> 0:20:32.119 in China to particularly around around tariffs. Interest rates coming 0:20:32.160 --> 0:20:34.040 down in the US actually will be a little bit 0:20:34.080 --> 0:20:36.520 of a benefit for China because that eases China has 0:20:36.520 --> 0:20:39.760 been had quite tight monetary policy. Actually, if you look 0:20:39.800 --> 0:20:43.160 at where real interest rates are nowhere near the level 0:20:43.160 --> 0:20:47.280 of Latin American real interest rates like Brazil or Indonesia, 0:20:47.320 --> 0:20:50.280 but they are relatively high, and obviously when you've got 0:20:50.320 --> 0:20:52.920 quite a weak economy that need they need to come down. 0:20:52.920 --> 0:20:54.640 But I think the government has always been worried about 0:20:54.680 --> 0:20:57.159 the level of the currency. So once you start to 0:20:57.160 --> 0:20:59.400 see the dollar stabilize a little bit or maybe even 0:20:59.440 --> 0:21:03.119 weakend again certain countries on rates coming down. That just 0:21:03.200 --> 0:21:08.760 gives the Chinese monetary system and ability to cut rates. 0:21:08.760 --> 0:21:12.359 But I think the real, real catalyst of China needs 0:21:12.440 --> 0:21:15.080 is on the fiscal side, and we wouldn't really see 0:21:15.080 --> 0:21:18.560 it happening in one big, you know, in one big 0:21:18.600 --> 0:21:23.280 sort of trigger point. It will be incremental and probably 0:21:23.280 --> 0:21:28.199 incrementally driven in the net between after the election and 0:21:28.280 --> 0:21:33.040 going into next summer, after the Workers Council in Economic 0:21:33.119 --> 0:21:37.480 Workers Council in December and then the two sessions in March. 0:21:37.960 --> 0:21:41.040 Yes, speaking of the you know, the FED interest rate 0:21:41.080 --> 0:21:43.920 cut being a benefit for China, you know, how how 0:21:43.920 --> 0:21:47.240 should we be positioning for the Fed the expected rate cuts, 0:21:48.280 --> 0:21:51.160 you know, in terms of small caps versus large caps? 0:21:51.200 --> 0:21:54.320 You know, you know we've seen the India small caps 0:21:54.359 --> 0:21:57.760 really outperformed this year. Is that going to be boosted 0:21:57.880 --> 0:21:59.840 by this you know, this cutting? 0:22:00.720 --> 0:22:04.040 Yeah? I think it's it's different things to all markets, 0:22:04.080 --> 0:22:05.720 I think, I mean, I think the first thing is 0:22:05.720 --> 0:22:10.040 is that you know, the FED cutting isn't automatically positive 0:22:10.080 --> 0:22:15.639 for em It isn't automatically positive for EM currencies with 0:22:15.760 --> 0:22:19.000 a weaker dollar. It depends on the growth outlook. So 0:22:19.119 --> 0:22:23.240 the most benign environment for emerging markets in Asia is 0:22:23.280 --> 0:22:25.520 when the FED is cutting, the dollar is weak, and 0:22:25.600 --> 0:22:30.640 global growth is outpacing US growth. And so it really 0:22:30.720 --> 0:22:33.560 comes down to why is the FED cutting? And so 0:22:33.960 --> 0:22:36.840 you know, if the FED is cutting and we you 0:22:36.840 --> 0:22:39.920 knowed the US economy is not going to a recession, 0:22:40.880 --> 0:22:43.960 and even if it does, it's a shallow recession, then 0:22:44.040 --> 0:22:47.520 that is pretty positive for markets because it's cutting and 0:22:47.600 --> 0:22:51.119 it's going to help growth. If it's cutting because the 0:22:51.240 --> 0:22:55.120 US economy is going into recession, then it's actually risk off. 0:22:55.600 --> 0:23:00.760 It's positive for the dollar, it's not positive for global markets. 0:23:00.840 --> 0:23:04.160 Our scenario is the FED is cutting, the US economy 0:23:04.200 --> 0:23:09.680 is strong. US economy, even with rate cutting and the 0:23:09.760 --> 0:23:12.280 slowdown in the US economy, is going to grow more 0:23:12.320 --> 0:23:16.320 than Europe and Japan, but there are certain other so 0:23:16.600 --> 0:23:20.360 countries in emerging markets that can grow more. So overall, 0:23:20.760 --> 0:23:24.800 the international growth is not going to surpass US growth, 0:23:24.840 --> 0:23:28.280 but emerging market growth will. And then it depends then 0:23:28.320 --> 0:23:31.320 in that scenario, what's going to do well. So anything 0:23:31.359 --> 0:23:35.680