Emerging markets: when the crowd gets it wrong

The biggest car-carrying ships on the planet. A chip-testing rig that weighs as much as a small elephant. Investment manager Alex Summers takes us inside some of emerging markets’ least-watched growth companies to explain how his team sees what others have missed. “Often, the crowd is going to be right,” he acknowledges, but when it’s not, long-termism, access to management and asking different questions are key to how his team determines investment opportunities. Background:Alex Summers is co-manager of our Emerging Markets Leading Companies Fund, an investment manager in our Emerging Markets Equity Team and a member of the International Growth Portfolio Construction Group.In this conversation, he tells Short Briefings… host Leo Kelion why one of his team’s guiding principles is that before investing in a company, he and his colleagues must be able to articulate the critical uncertainty about a stock and why others may be wrong. “Often, you can observe something about a company, and it may be true,” he explains. “But if everybody else believes that, you’re not going to create any additional outperformance by owning those companies.” Companies discussed include:Hyundai Glovis – the logistics company that’s invested in a dozen ultra-sized ships and now sees an opportunity in transporting spent electric vehicle batteriesChroma ATE – the test-equipment company whose customised cabinets provide critical checks for NVIDIA and NasaSilergy – the mainland China-based semiconductor company specialising in power-management chipsReliance Industries – India’s most valuable company and its heavy investment in solar panels, green hydrogen and battery storage systemsToss – the South Korean financial super-app that provides banking, payment and ecommerce services Resources:Baillie Gifford websiteEmerging Markets Leading Companies FundEmerging markets: from imitators to innovators (video)Emerging markets: the next engines of global growthShort Briefings on Long Term Thinking podcast archiveWhen consensus fails Companies mentioned include:·       Chroma ATE·       Hyundai Glovis·       Meituan·       NVIDIA·       PB Fintech·       Reliance Industries·       Samsung Electronics·       Silergy·       SK hynix·       Talabat·       Toss·       TSMCTimecodes (audio version):00:00 Introduction01:45  From Toronto to Edinburgh02:35 A lesser-covered class of companies03:35 Taking a five-to-10-year view04:15  Forming non-consensus views05:35 Hyundai Glovis and EV batteries07:10  Corporate governance reform in South Korea09:30 Getting access to senior leaders11:50   Chroma ATE’s chip-testing equipment14:50  Building conviction in Silergy16:30  Declining to invest in Talabat18:20  Visiting Reliance Industries in Jamnagar20:45 Retaining sell discipline22:00 Toss and private companies24:15  Moving towards physical assets25:35 Podcasts and Substack picks  Glossary of terms (in order of mention):Magnificent Seven: A nickname for seven large US technology-related companies – Alphabet, Amazon, Apple, Meta, Microsoft, NVIDIA and Tesla.Holding period: The length of time an investment is owned.Corporate governance: The systems and processes by which a company is directed and controlled, including board accountability and the treatment of shareholders.Minority shareholder: An investor who owns less than a controlling stake in a company and cannot direct it alone.Bottom-up investing: Assessing individual companies rather than starting with forecasts for economies, markets or sectors.Economies of scale: Advantages that arise as a company handles more volume, reducing the average cost of each unit.Profit margin: The proportion of revenue left as profit after costs have been deducted.Graphics processing unit (GPU): A chip designed to perform many calculations in parallel, originally for graphics but now also widely used in AI.Analog chip: A semiconductor that processes continuous real-world signals, such as sound, temperature or voltage.Flotation or initial public offering (IPO): The process by which a private company first offers shares to public investors and lists them on a stock exchange.Cash flow: The movement of money into and out of a business over time.Capital allocation: The decisions a company makes about how to use its money, such as investing in growth, making acquisitions, paying dividends or reducing debt.Business vertical: A distinct business area within a company, usually focused on a particular product, service or market.Overweight: Holding more of an investment, sector or theme than the index used for a comparison.Fintech: Technology-driven financial services, such as digital payments, lending or banking tools.Insurance brokerage: A business that helps customers compare and buy insurance, acting as an intermediary between them and insurers.Capital-light: Describes a business that needs relatively little investment in physical assets to operate and grow.

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