Global Emerging Markets Leaders

The long-term outlook for Indian companies remains bright

The quarter saw a continuation of an unhelpful dynamic: the significant outperformance of the Chinese market relative to India, to which this strategy has a significantly higher level of exposure. Despite this, we remain enthusiastic investors in high-quality companies aligned with India’s economic development. So far, this year has seen a reduction in income taxes and a simplification of the Goods and Service Tax (‘GST’) system. The Reserve Bank of India, meanwhile, has been cutting interest rates. So demand is now being supported by both fiscal and monetary loosening. 

There is, of course, more to emerging markets than China and India. Recent trip reports from Indonesia, India and the Philippines are available on our Insights page. Having visited South Korea in September, we are increasingly confident in the changes to corporate governance standards that are unfolding in that country. These echo similar reforms seen in Japan and should have positive effects on shareholder returns in Korea and perhaps across the region more widely – a similar mood of reform now seems to be infecting other countries across Asia. 

Continuity and change

It would be remiss not to mention the changes that have taken place at Stewart Investors   over the last quarter. After acting as careful stewards of our clients’ capital over many years, three of our colleagues stepped back from their portfolio-management responsibilities in August and left the business. While the list of portfolio-management responsibilities within our team looks different now than it did when the quarter began, on a deeper level, nothing has changed: the philosophy and approach that has defined Stewart Investors since 1988 is deeply engrained and continues to define what we do. Our structure is flat. Every member of the investment team is first and foremost an analyst and our collective focus is on identifying high-quality companies, with resilient financials, guided by ambitious stewards. 

Jack Nelson remains this strategy’s lead manager. He continues to apply the same principles to managing it that have guided it since its launch, working as part of the same tight-knit group of investment analysts and drawing on a common pool of investment ideas.

Activity

We added three new holdings to the portfolio over the quarter. There were no complete sales.

In addition to Shopee, the dominant e-commerce platform in Southeast Asia, Sea (Singapore: Consumer Discretionary) owns digital entertainment brand Garena and provides digital financial services through SeaMoney. Shopee is increasingly well established around the world, employing 45,000 ‘partner-drivers’ in Brazil.¹ We believe Sea now has an opportunity to expand into new markets as well as increasing the penetration of Shopee and SeaMoney. The company’s founder, Forrest Li, remains closely involved in the business but is now supported by a professional management team. He has built a great franchise backed by solid financials (the company has net cash on its balance sheet) that empowers millions of small businesses to grow and create jobs by giving them direct access to their customers.

We also added a new holding in Motilal Oswal Financial Services (India: Financials), a brokerage and wealth management business that is poised to benefit from the desire of India’s increasingly wealthy middle class to have greater access to capital markets. It is still managed by its founders, including the eponymous Motilal Oswal and we can see a steady growth path ahead for the coming decades. 

The final new position is MakeMyTrip (India: Consumer Discretionary), a leading online travel website. It should benefit from a continuing shift in India towards booking travel online. Meanwhile, as the disposable incomes of Indian consumers grow, they will increasingly want to travel overseas as well as domestically. While it is 49% owned by Trip.com, the Chinese online travel business, the company’s founders remain involved in the business’s day-to-day activities, supported by a professional management team. It is already a leader in the online travel space in India but the real growth opportunity lies in the offline segment, specifically in bus and hotel bookings, many of which continue to be made in bricks-and-mortar travel agencies. 

[1] Source: Sea Shopee Celebrates 5 Years in Brazil, Strengthening Income Generation and Entrepreneurial Growth.