13 October 2022

Rebecca Hotsko chats with Asha Mehta. In this episode, they discuss why investors may want to consider investing in emerging and frontier markets for higher returns, which emerging markets Asha is most bullish on, why inflation has actually been positive for some emerging market’s stock returns, what additional risks investors need to consider before investing in emerging market stocks, which emerging markets are too risky to invest in, how investors should think about the delisting threats of Chinese equities, and so much more! 

Asha Mehta is the Founder and Chief Investment Officer of Global Delta Capital, with a focus on Emerging & Frontier Markets and Sustainable Investing. In addition to having managed the world’s first Frontier markets fund, she launched one of the earliest onshore China strategies in the United States. She is also the author of the upcoming book POWER OF CAPITAL.



  • Why you might want to invest in emerging and frontier markets for higher returns. 
  • What is a frontier market and why does a country’s classification matter for stock returns? 
  • Why inflation has actually been positive for some emerging market’s returns. 
  • Is China too risky to invest in? 
  • Should US investors be worried about the delisting threat of Chinese equities? 
  • Which emerging markets Asha thinks are overvalued right now.
  • Why Asha believes India is the next big emerging market. 
  • And much, much more!


Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

Asha Mehta (00:03):

I think it’s fascinating to note that in emerging markets, inflation is actually often a good thing. Countries in the emerging markets, over the last couple of years, that have had the highest inflationary pressures are actually showing very strong returns.

Rebecca Hotsko (00:20):

On today’s episode, I’m joined by Asha Mehta, who is the founder and Chief Investment Officer of Global Delta Capital, author of upcoming book, Power of Capital, and she has extensive experience investing in emerging and frontier markets. In this episode, Asha talks all about which emerging markets she believes offer the greatest return opportunities going forward and why inflation has actually been positive for some emerging economies.

Rebecca Hotsko (00:48):

She also talks about which emerging markets she thinks are too risky to invest in, and I get her thoughts on Chinese equities, and particularly, her thoughts are on the de-listing threats related to these stocks, and so much more. So, with that said, I really hope you enjoy today’s conversation with Asha Mehta.

Intro (01:07):

You are listening to Millennial Investing by the Investor’s Podcast Network, where your hosts, Robert Leonard and Rebecca Hotsko, interview successful entrepreneurs, business leaders and investors to help educate and inspire the millennial generation.

Rebecca Hotsko (01:30):

Welcome to the Millennial Investing Podcast. I’m your host, Rebecca Hotsko. And on today’s episode, I am joined by Asha Mehta. Asha, welcome to the show.

Asha Mehta (01:41):

Hi, Rebecca. I’m so happy to be joining you.

Rebecca Hotsko (01:44):

I’ve been really interested in having someone on the show to talk more about investing in emerging markets. There’s lots of opportunities in this space, but I think what holds a lot of investors back is the additional risk that comes with investing in emerging and frontier markets.

Rebecca Hotsko (02:01):

So, you have lots of experience in this area, you launched one of the earliest onshore China strategies in the United States, so I thought you would be a great person to have on. And I’d like to start out by hearing more about your conviction and interest around investing in emerging and frontier markets and why you decided to make this a core strategy for your firm.

Asha Mehta (02:25):

Thanks so much. I’m delighted to share with you my passion for investing in these markets, but from an investment perspective, why I think there’s outsized opportunity for delivering alpha in the asset class. Emerging markets today have reached a state of maturity that they offer very compelling investment profile.

Asha Mehta (02:42):

On the flip side, there are concerns, by many investors, about these asset classes, and I’ll say the maturity of the markets, coupled with those concerns, actually is what makes this such a compelling investment opportunity. Today’s emerging markets actually bear very little resemblance to the markets that people thought of a couple decades ago.

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Asha Mehta (03:00):

Today’s emerging markets have a strong middle class, and domestic demand fuels these markets. It replaces the dependency on commodities, that emerging markets had decades ago, with a strong consumer-driven thematic. That is in sharp contrast to how many investors think about the emerging markets.

Asha Mehta (03:19):

Many investors think about this as an area where there should be limited exposure. There is not a lot of information flow on emerging markets with respect to the investment characteristics. There is mystery related to these markets, and there is often fear, which I see very palpably just by reading the news flow each day, the mistrust between China and the US, Russia invading Ukraine.

Asha Mehta (03:41):

These concerns and this type of news flow is in fact what causes investors to see so much risk in the market. They see volatility, they see governance risk, they see currency risk, and that is what creates the inefficiency in the asset class. There is inefficiency in terms of structural allocations. Investors tend to be under-allocated to emerging markets, and missing some of the largest and most important markets, as I said before.

Asha Mehta (04:10):

There’s inefficiency in that, given that there’s less institutional participation, stocks often don’t trade at their fair market value the way they typically do in the more liquid developed markets. But given the nuances in emerging markets and given how large the markets are today, we believe that there’s significant opportunity to build strategies specifically with emerging markets in focus.

Asha Mehta (04:34):

I know I said a lot, but at the highest level we’re interested in emerging markets because we believe that it offers significant potential not just for the beta, not just for exposure to the asset class, but for the alpha as well, the ability to generate excess returns beyond the benchmark.

Rebecca Hotsko (04:50):

So, for our listeners that may not know, can you explain what a frontier economy is, and why does a country’s classification matter in the context of accessing capital and their stock market?

Asha Mehta (05:04):

As I said before, it’s important to account for the differences between a developed market, emerging market, and a frontier market. Frontier markets are essentially markets that are at earlier stages in their development than emerging markets. Classifications of countries into one of those three categories is typically done by established benchmarks, so not necessarily at the manager level, but by a group like MSCI or S&P.

Asha Mehta (05:28):

I think what’s so fascinating about these classifications is that it does not relate to the size of the market, the geopolitical importance of the market, or the type of government of the market. Rather, the key defining feature, the way I think of what defines an emerging markets versus a frontier market, is the liquidity profile, how much trading is happening within that market.

Rebecca Hotsko (05:51):

Why does a country’s classification then of frontier emerging market… What impact does that have on its stock market, its availability to access capital? What’s the implications there?

Asha Mehta (06:04):

Very significant implications because these classifications do exist by third-parties, and there’s so much institutional and retail flow that’s following these classifications. So, what it means is that for the more liquid asset classes, developed markets, and emerging markets, these tend to be mainstream allocations, like I said before.

Asha Mehta (06:23):

Frontier markets, because of that liquidity profile, often requires a more nuanced approach to managing investments there. I think that’s very exciting for a couple of reasons. One is, just as a general law or rule of thumb in the investment space is that if an asset class is less covered or if a certain set of stocks is less covered, tends to be more pricing inefficiency and more opportunity for alpha generation.

Asha Mehta (06:47):

So, frontier markets, I’ll just make two points. The first one is, frontier markets are a very compelling investment asset class because they aren’t followed by many institutional investors, and it means there’s more room for active stock picking and therefore out-performance of a benchmark.

Asha Mehta (07:01):

But the other point, and I think a really important one in terms of how do you make money in this asset class, is recognizing that emerging markets are very large relative to frontier. So, when a country is upgraded, upgraded from frontier markets to emerging markets, that creates a very significant return generation event.

Asha Mehta (07:20):

And in history, when MSCI, for example, has upgraded a market from frontier to emerging, markets have approximately doubled in size because there’s so much more institutional capital chasing those markets, effectively being forced to invest in those markets.

Asha Mehta (07:35):

And for every $1 of passive capital that moves into an upgraded market, there’s $5 of active money. So, it’s a very significant flow of capital. And we think an important way to capture return in the emerging and frontier space is to be early to those upgrades.

Rebecca Hotsko (07:50):

So, I’m wondering if you can speak a bit about what you think are the major drivers of emerging markets growth going forward. Is it more due to population growth, technology adoption, or labor participation?

Asha Mehta (08:04):

Thanks, Rebecca. I think you actually hit on all of the significant themes, and I’ll just add a bit more. But we see what enables the emerging markets to leapfrog ahead, perhaps even in some context beyond the developed markets, is the intersection of so many of the themes you mentioned, technology, demographics, base of the fact that emerging markets are typically growing from a smaller base.

Asha Mehta (08:28):

And just to add a little detail, why are these effects driving so much? Well, the first is cost. Technology is cheap today, which is essential, of course, for populations with less spending power. Over the past decade, as the cost of technology has plummeted, the number of smartphone owners across the globe has skyrocketed from a couple 100 million to more than half of the world’s population.

Asha Mehta (08:51):

So, as we all know, these iPhones today, or any smartphone, really, are very powerful. We see the population of more than half of the globe carrying the power of a supercomputer in their pocket, essentially. With respect to demographics, with this technology in hand and demographics on their side, emerging economies are innovating faster, and in some ways, better than their global peers.

Asha Mehta (09:12):

About 90% of the world’s population under 30 lives in developing economies, and today they are being educated, just like here in the US, on STEM thematics, on how to use this technology to develop innovation. Rebecca, question for you, can you guess which country will be the most populous by 2050?

Rebecca Hotsko (09:32):

I would probably say somewhere in Africa, if I had to guess.

Asha Mehta (09:36):

I’m impressed, I’m impressed. You’re absolutely right. Nigeria is set to be the most populist country across the globe in just a couple of decades, and we’re seeing some of the most innovative technologies coming out of not just Nigeria, but that region and the emerging markets globally.

Asha Mehta (09:52):

The young cohort is quick to adapt to technology, eager to develop it further. We’re seeing digital revenue in emerging markets growing at more than double the pace that it’s growing in the developed markets. It’s pretty fascinating the type of technology that’s, again, revolutionizing this asset class and driving growth.

Rebecca Hotsko (10:13):

I’m curious to know how that growth then translates to returns for investors. What are the most important sub-sectors that you see benefiting from these growth prospects and that increased adoption of technology?

Asha Mehta (10:28):

I think the way you phrased the question is just right, that technology in and of itself doesn’t have to be a sector that is targeted. I’m a value investor, I’m looking for stocks or sectors that trade at a discount relative to their history and relative to their peers. I like the technology theme, as I’ve said, but in the tech sector itself, in developed markets and emerging markets, I often find that it’s a theme that’s overvalued.

Asha Mehta (10:54):

And the reality is, technology is everywhere, technology is infused in every sector, technology is vertically integrated. So, just a bit of preamble. But let me highlight a couple sub sectors that I think are being transformed within the emerging markets. The first is in the financial services sector.

Asha Mehta (11:12):

The fintech and the telecom revolutions have enabled the rise of savings accounts, credit lending, and other financial tools, that are fueling businesses by hiring up entrepreneurs and propelling countries toward growth. I spent a whole chapter in my upcoming book called Power of Capital on how mobile money is transforming Africa, but I wanted to say a couple words about Brazil.

Asha Mehta (11:34):

Brazil today is enabling financial empowerment and access. I see this country as one of the most progressive and liberalizing standards for the financial services industry, even at the central bank level, easing capital requirements, allowing fintechs to run their own payment collection and lending services. Today, Brazil is one of the leaders in the fintech market.

Asha Mehta (11:56):

I’ll comment on two more sub sectors quickly. Another one is the consumer class. E-commerce has brought billions into the formal economy. It’s lifted the poor, given them voice, provided capital to the financially starved. And again, these are not just local, individual level effects, but this is what drives a whole economy by creating tax revenue and bringing people into the formal economy.

Asha Mehta (12:19):

One of my favorite examples in the E-commerce space is MercadoLibre. Even though Argentina was considered by many to be the great shorts of the last decade, this company is based in Argentina and was actually one of the strongest performers across all markets; developed markets, in emerging markets, despite being based in the country that had been one of the weaker performers overall.

Asha Mehta (12:43):

MercadoLibre, I call it the Amazon of the Amazon, others call it the eBay of Latin America, founded by Marcos Galperin. And his idea around building out E-commerce in Latin America was built on many of the themes that I think are critical. One is talent, this idea that talent exists across the emerging markets, and he himself is an example of this reverse brain drain, people from the emerging markets coming to the developed markets for education and for experience and bringing that back home.

Asha Mehta (13:10):

Logistics technology is simplifying the logistical challenge to distribute into the most remote villages, and again, bringing marginalized people into the global economy, entrepreneurship, and really impact, democratizing commerce, in a sense, and bringing people into a global network. I’ll keep it really brief because I know we have so much to talk through. But a third sector I’d like to highlight is the new energy complex.

Asha Mehta (13:36):

I’m seeing leadership in the energy sector across the emerging world. China and India are leading the pack in terms of innovations and investments in this space, and even Africa is bringing exciting innovations from across the continent. This is driven, to be perfectly honest, by great need. The average electricity access rate for the Sub-Saharan African region is 47%, and in the rural areas it’s 28%.

Asha Mehta (14:02):

In South Africa it’s higher, but still, half the population lives below the poverty line. High energy poverty, if it were addressed, could again fuel this economy and bring people into the workforce, get businesses moving and bring productivity to the local economy.

Rebecca Hotsko (14:22):

For investors interested in participating in these returns that come from investing in emerging frontier markets, what do you recommend is the best way that investors can get exposure to this?

Asha Mehta (14:35):

I think the best approach is a combination, not necessarily in ETF, but active management and broad diversification. Emerging markets clearly offer significant growth potential, demographics growing well, and transition to the services sector. We don’t recommend a broad market ETF to capture these themes for a couple of reasons. One is returns-driven.

Asha Mehta (14:58):

There’s, given the inefficiency, we believe that this is the classic opportunity for active management. I said before, data has improved substantially in the emerging markets, but access to that information is sometimes harder to come by. Therefore, as I alluded to before, stocks trade inefficiently. They don’t trade at their fair market value.

Asha Mehta (15:21):

And in this asset class where there is less institutional coverage, I find there’s outsized opportunity to find what I call “the unicorn stocks”. Unicorn stocks obviously means something very different in the venture space, but here in the active management space within inequities, I think of unicorn stocks as those that look good across multiple dimensions.

Asha Mehta (15:40):

They’re showing good growth prospects, they’ve got the financial management to achieve that growth, they have governance teams in place that are well positioned to execute, the stocks are trading at a discount to their fair market value, and there’s some momentum to the stock price.

Asha Mehta (15:55):

Because of the inefficiency, there’s outsized opportunity to identify those stocks, and that’s one reason why we think an ETF simply doesn’t deliver the same return opportunity that you could get through active management. The other critical reason to use an active approach in emerging markets, beyond identifying where the outsize returns opportunity are, it’s to mitigate risk.

Rebecca Hotsko (16:19):

So, it seems like even though these emerging and frontier markets, they’re expected to grow substantially, it’s not going to be uniform across all sectors, and so, from what you said, is it fair to say, that’s why buying a total market ETF wouldn’t give you the same returns as a more active approach?

Asha Mehta (16:39):

That’s right, that’s right. And I’ll just add to that, that through an active ETF, you’re not getting exposure to perhaps the industries that have the right the thematics, but I meant specifically the stocks themselves. And importantly, on the risk mitigation side, you can get outsized exposure to countries that have risky events. I know we’ll talk about China soon, and you can’t talk about emerging markets without talking about China.

Asha Mehta (17:01):

Historically, China’s represented a third of the asset class, and so if that feels like too much to you, then one might think, again, it’s a tangible example of how active management can be a solution to providing the risk exposures that investors is seeking in their portfolios.

Rebecca Hotsko (17:18):

So, I do want to talk to you about risks, because it seems like that is probably one of the biggest things that hold people back from investing in emerging markets are those perceived additional risks that come with these investments. Can you speak a bit about what are the major risks that investors should consider when investing in emerging or frontier markets?

Asha Mehta (17:39):

As I mentioned here earlier in our discussion, there is fear about investing in these markets, there is mistrust in many markets, there are many risks, you said “perceived”, I think that’s the right phrasing where the perceptions perhaps are overestimated, but certainly, the risks are plentiful and the risks are real. And it relates back to the question you had just asked around country risk and this idea that the greatest source of risk in emerging markets is country risk.

Asha Mehta (18:04):

So, what are some of those drivers? They can be market-driven, like excess volatility within a market, or oil exposure, what happens for exporters with plummeting oil prices or vice versa, oil importers, if there’s excess reliance on external sources of commodities. There’s macro risk in the inflation environment and the currency environment.

Asha Mehta (18:25):

There’s trading risk related to liquidity and foreign ownership limits. Then, there are, of course, risks that are more subjective but still very real, like the corruption. To what extent can you invest in a market if you see a significant corruption profile? There’s the regulatory risk, and again, China offers some profound examples, which I’m sure we’ll talk about as well.

Asha Mehta (18:47):

Again, some of these are over-overestimated, nevertheless, they are real. Like I said before, emerging markets is not a region. What moves one country is idiosyncratic from another. One aspect of investing in these markets that I find is often unintuitive but very powerful is the fact that through a diverse portfolio you can actually limit the volatility that the portfolio is exposed to.

Asha Mehta (19:12):

I often find investors surprised to learn that in a diversified frontier markets fund, you can generate a portfolio that has a less volatile profile than in the developed markets. And that’s not because frontier markets aren’t volatile, they’re very volatile. Argentina and Nigeria have had multiple years where their markets have been down 50%, and then, in contrast, other regions can be up a hundred percent in a year. They’re very volatile, but that volatility can be smooth in the context of a diversified approach.

Rebecca Hotsko (19:43):

So, you mentioned a ton of risks there that we should consider in our investment process. And the question we have to ask yourself is, is this risk already priced into the stock yet? But you mentioned inflation as one of the core risks. So, inflation has been the center of attention for both emerging and developed economies for much of the last year. So, I’m wondering if you can talk a bit about how inflation has been impacting investing in emerging markets.

Asha Mehta (20:11):

For sure. And I agree with so many of the points you just made, and I’ll circle back to them, actually, because I think inflation is an interesting example of how these risks do get priced in by investors globally quite quickly. So, it is very true, here in the US and across developed markets, inflation has been very real. We live in a world today of rising rates and slowing growth, and I do believe that’s causing many investors, potentially more contrarian investors, to think, is this the right time to be investing in emerging markets?

Asha Mehta (20:41):

Again, given this profile, there’s with many investors a sense of more risk aversion, but for those who are seeing slow in growth, they’re wondering, where are we going to find growth next? I think it’s fascinating to note that in emerging markets, inflation is actually often a good thing.

Asha Mehta (20:57):

Within the asset class, within the equity space, equity markets are generally a good place to be in an inflationary environment because higher input prices can be passed on to consumers. That’s at the asset class level, why be in equities? But even at the country level, we’re seeing that same trend. Countries in the emerging markets, over the last couple of years, that have had the highest inflationary pressures are actually showing very strong returns. Argentina, Chile, Turkey. And the question is, why?

Asha Mehta (21:28):

Part of it is what I just said, that there is a positive relationship between corporate profits and inflation. And again, we’re seeing that here in the US where we just had a very strong earning season where companies are showing good earnings despite the inflationary environment. But the point that’s emerging markets-specific is that in emerging markets, in these inflationary environments, currency tend to depreciate.

Asha Mehta (21:50):

And a depreciating currency in emerging markets actually is very attractive. It makes the exports for the emerging markets cheaper for global users of those exports, global importers. We see a depreciating currency a positive for countries, and again, that’s often inflationary-driven. I’d say that’s even more valuable in today’s, what I call, China+1 environment when investors are looking to have less supply that’s housed exclusively in China, but they’re looking for that plus one, who are we going to draw our supply from in addition to China perhaps?

Asha Mehta (22:24):

Again, having a depreciating currency makes those countries more attractive to build supply chains around it. So, how do we recommend investing in inflationary environments and emerging markets? You’ll see I come back to a similar set of themes. One, we want to be in equities. Number two, we want to pick the countries that are best positioned to perform in an inflationary environment. Those are countries that have a depreciating currency, that are showing growth prospects, that have a limited corruption profile, and we want to be in resilient sectors. So, sectors where again, the inflationary pressures can be passed down to consumers.

Asha Mehta (22:59):

We’re seeing that in many of the Asian markets, the Asian markets in particular, Thailand, Philippines, Vietnam, we’re seeing it in India as well. But ultimately, and this is where it may sound repetitive, Rebecca, we recommend being an active stock picker. Yes, country risk is the greatest source of risk, but equally, if not more important, is stock-specific risk.

Asha Mehta (23:22):

Given the inefficiency in this asset class, there’s outsized room for returns and outsized opportunity for risk mitigation, not only by managing the country risk exposures, but by looking at companies that are well-positioned in an inflationary environment.

Rebecca Hotsko (23:36):

That’s really interesting that emerging markets would be a good pick in an inflationary environment, because I think everyone right now, that’s on the forefront of their minds, where to get return in this inflationary environment. I also want to touch on another major risk that’s been on the minds of all investors, which is the ongoing tensions between China and the US. It just seems even some of the best names in the game had a threat of delisting. And I’m just wondering if you can talk a bit about your thoughts on the risks between US and China, how you think about these risks in investing in these markets.

Asha Mehta (24:15):

I want to address, right at the start too, that China, in many ways, is a poster child for the changes that are underway in emerging markets. From a return perspective and from a global growth perspective, China has transformed. Today, China is one of the globe’s largest economies pre-pandemic. It’s contribution to global GDP growth outpaced that of the US. I see two approaches to investing in China.

Asha Mehta (24:40):

One is to avoid investing in the market entirely, and this is actually a trend that is getting some traction. Today there are emerging market strategies that include significant China weight, and there’s a growing trend to developing emerging market strategies that are ex-China, and that’s to limit the China risk. Some of the strategy behind going ex-China is because they want to build a separate China-only infrastructure.

Asha Mehta (25:07):

The reality is that the opportunity to invest in China is very compelling. China’s stock market, like I said before, the largest in the world with a massive middle class, some of the greatest innovations, and consumer stocks are actually listed in the local China market. Because it’s so large, it’s relatively easy to find those unicorn stocks that look attractive on many dimensions.

Asha Mehta (25:31):

While it is one strategy just to simply avoid investing in China, you mentioned delisting risk, our preference is to take a China exposure, but to specifically be invested in companies that are showing that inefficiency profile. We see those types of stocks typically in the small cap or the midcap side of the spectrum.

Asha Mehta (25:49):

We recommend investing in small cap securities within the asset class, being an active manager, paying attention to the governance profile of these stocks, looking carefully at the balance sheets and income statements to evaluate the accounting standards. And ultimately, in the small cap side of the spectrum, we also see significantly less regulatory risk is, of course, important in the context of China.

Rebecca Hotsko (26:12):

I have two things I want to follow up with you on that just because there has been that big regulatory crackdown in China on tech companies, which hit a lot of them. I’m just wondering your thoughts, do you think that was overpriced into those big tech stocks, or how do you see that regulatory crackdown evolving going forward? Do you see most of those risks mitigated now?

Asha Mehta (26:35):

Rebecca, I think it’s a really interesting question. It speaks exactly to the point I was just making around having more exposure to the small and midcap part of the market within China. My strong conviction is that in the smaller cap stocks, you’re much less likely to see risk of this corruption crackdown.

Asha Mehta (26:51):

Yes, I think that the risk was unanticipated, but I think that it’s a very real risk and can happen again. Given the inefficiency in the smaller and mid-cap side of the spectrum, given the amount of alpha potential that’s there, given the breadth of this market, and given the innovation profile of stocks that are in the lower, less politically charged part of the market, we do recommend avoiding the largest cap stocks.

Rebecca Hotsko (27:17):

Is that because you think that they’re just more exposed to these risks and maybe their growth, it’s slowed now, because I know Alibaba and Tencent, Badu, JD, they were growing at double digits for years, and so I’m just wondering, do you think that’s over for them now?

Asha Mehta (27:35):

Well, there’s certainly strength that comes from being part of a platform company. And I don’t want to suggest that there isn’t a return profiler or growth opportunity that comes from investing in those stocks. Where I’m going is that I think on the small and mid-cap side of the spectrum, you can find equally if not more compelling growth opportunities, more innovation, and at the same time, protective portfolio from some of those regulatory risks that came to light during the run up of what I call the [inaudible 00:28:04].

Rebecca Hotsko (28:07):

I also want to get your thoughts on the delisting fears because the SEC released a long list of Chinese equity names that could be potentially delisted. A lot of investors in the US might have exposure to them, some of which being Alibaba, Tencent, Badu, JD, all those big name companies. So, I’m just wondering, is this something that investors should be worried about, these delisting fears, and how should they be making investment decisions on this?

Asha Mehta (28:37):

The delisting risk, of course, came out of a conversation about what are the accounting practices of the larger companies or the US listed securities here in the US. And my research of emerging markets and frontier markets over the last 15 years, I have found that what makes many of these markets so compelling is the fact that not only does the data exist today, but that data is of high quality. And the accounting firms that are tracking this data are well-known names here in the US or in Europe.

Asha Mehta (29:07):

In China, that’s not the case. In China, they use a different set of accountants and they have different accounting standards. So, I think it’s fair that the question has arisen, and I think it’s right for investors to be concerned about delisting risk. I think the likelihood of that risk is quite low. My view is that tensions are likely to ease between the US and China in the coming months. That’s driven by several features.

Asha Mehta (29:31):

One is the high inflationary environment here in the US and our desire to access the supply chains that are not only online but also can offer some deflate deflationary pressures, and China’s economy, of course, is struggling as well. And the zero COVID policy that they’ve implemented has had economic ramifications that today support them, again, reentering the global economy.

Asha Mehta (29:53):

So, my view is that attentions will ease, and we’re seeing some early signs of that easing occurring. Just a couple weeks ago. The Chinese CSRC and the SEC signed an audit supervision agreement that suggests that there will be a meeting of the minds when it comes to these accounting practices and that the delisting risk may come off the table.

Asha Mehta (30:15):

But in the nearest term, I think the answer is that that delisting is not coming anytime soon, but the risk is real. One should continue to very closely follow that risk. And again, I think that, to the extent possible, having that onshore access and investing more in small and mid-cap stocks that are more protected from these regulatory risks is simply a safer place to be.

Rebecca Hotsko (30:39):

And I’m curious to get your thoughts on which emerging markets you are most bullish on right now.

Asha Mehta (30:46):

There are many parts of the emerging markets that actually held up quite well during the last decade. Again, overall, emerging markets underperformed, but many of the strongest countries again are showing the thematic we’ve talked about before, investments in technology, liberalization of their markets. Saudi and many other Gulf markets kept up with US markets over the last decade. Vietnam, Romania, there have been some very strong performers.

Asha Mehta (31:13):

Looking forward, we see this trend continuing. The Middle Eastern countries, specifically the GCC countries, the Gulf countries, not only had been very strong performers, but as they are diversifying their economies, they continue to trade at compelling discounts to emerging markets and developed markets, and have strong fundamentals.

Asha Mehta (31:32):

In addition, you’ve mentioned Asia a couple times, we still see, as I said before, a lot of opportunity within China given its scale, its breadth, it’s [inaudible 00:31:41], but even beyond China into the Asian markets, Philippines and Malaysia are looking very attractive to us. They offer business-friendly environments, high literacy rates, and again, compelling consumer class. So, across commercial real estate, residential real estate, and consumer themes, we’re seeing opportunities across the Asian markets as well.

Rebecca Hotsko (32:04):

And I’m also interested to hear your thoughts on which emerging markets do you think just are too risky for investors to consider right now?

Asha Mehta (32:14):

There’s a couple thematics I’ll highlight here. One, of course, is Russia and Ukraine. To be fair, there’s not much you could do even if you wanted to given the global sanctions that have occurred in Russia and the capital controls that exist with respect to Ukraine. So, those are both markets that are hard to access. Anyways, from an investment standpoint, the volatility that I see there wouldn’t make these investment opportunities compelling anyways.

Asha Mehta (32:38):

But I’ll highlight that the risks that I see with respect to Russia and Ukraine are somewhat contained and don’t necessarily impact the return potential for a broader global emerging market investment plan. Other markets that I see as risky, it’s more at the country level, India, Saudi, Vietnam.

Asha Mehta (32:58):

While I like all of these countries from a fundamental standpoint, I see all of them as overvalued today, and so at the ETF level, those are regions that I’d recommend not investing in today. Having said that, these are all very deep markets with not only tremendous liquidity but also a lot of listings at the stock level. I’m seeing opportunity across all those markets.

Rebecca Hotsko (33:23):

Then, I’m wondering, if the China market starts to become less desirable for investors because of these ongoing tensions, if they don’t deescalate anytime soon or even their continued slowdown in economic growth, I’m wondering what you think is the next big emerging market.

Asha Mehta (33:43):

I feel quite strongly the next big emerging market, if we’re assessing it by the size of the economy, the number of listings, the liquidity within the market, it has to be India. The Moody Government has driven what I call the digital revolution within India. They have digitized paper and introduced what is today the world leading program with respect to biometric ID.

Asha Mehta (34:09):

I have no doubt this is not only a large country, but it’s a country on the rise. It is on track to be a $5 trillion economy within the next two years, making it one of the largest economies on earth alongside the US and China. Given the depth and given the number of listings within this market, we think there is ample opportunity for stock picking within India.

Rebecca Hotsko (34:33):

That’s really interesting. So, you said that India is overpriced right now though on a total stock market basis. Where does that leave investors in trying to participate in this earnings-per-share growth, because even if the economy grows into the next superpower, it might not translate into earnings-per-share growth for investors. So, I’m just wondering, how can they reconcile those two and what should they be looking for, what pockets, perhaps, in the India market?

Asha Mehta (35:03):

That’s exactly right. There’s so many points you said that I just want to reinforce. Macro growth does not translate to equity market returns. And despite the fact that this is not only a large economy with a large base, but also a rapidly growing one, I wouldn’t say that’s an indicator for growth. And you’re exactly right, I did say that at the ETF level or the broad macro level, I would not recommend investing in India today.

Asha Mehta (35:27):

India’s been a very strong performing country over the last several years, and the valuations today are quite rich with the country. So, I want to be very clear, while I see India as a very large market and one that perhaps doesn’t get enough awareness in the fact that it is such a large market, one of the third largest economies at the broad market level, I’m not suggesting that there’s a strong return opportunity for investors here.

Asha Mehta (35:52):

But to your point, given the size, the breadth of the market, there are certain pockets and certain sub sectors where we’re seeing compelling opportunities. So, we strongly recommend a stock-picking approach within India. And here again, the tech sector, whether it, again, vertically integrated, whether that’s with respect to financials, whether that’s respect to utilities, many of the things I mentioned before, we’re seeing strong opportunities, but it’s with that stock-specific lens, not necessarily at the broad market level.

Rebecca Hotsko (36:24):

Then, is there just any other major themes or markets that you’re watching in these emerging and frontier markets that investors should be aware of?

Asha Mehta (36:34):

Yeah. Rebecca, we’ve talked about many of the themes that I think are critical in the emerging markets; using the power of systematic finance, recognizing that there are markets that go uninvestible, and regulatory risk does matter, seeing the role of technology, we’ve talked about many of the regions that I’m covering.

Asha Mehta (36:53):

I think the one point that hasn’t come out in our discussion that I think is very real and perhaps needs broader recognition in this environment is the fact that emerging markets not only give us outsized opportunity to generate returns, but they also give us outsized opportunity to generate impact.

Asha Mehta (37:12):

I’ve talked so much about where I’m seeing promising change and where technology is transforming these markets. The reality is, that is the case. And in addition, at the same time, I mentioned the base effects, the fact that these markets are growing from a low base and they’re very much subject to the environmental and social risk, we are subject to in the developed markets as well.

Rebecca Hotsko (37:35):

That was great. We covered so much today. We looked at what investors should be looking at in terms of trends in investing in emerging in frontier markets, maybe a checklist for the risks that they should consider before buying one of these companies. And thank you so much for being so generous with your time today. Before I close out the episode, where can the audience go to connect with you and learn more about you and your work?

Asha Mehta (38:03):

Thanks, Rebecca. I have really enjoyed our conversation, and I’d love to interact with any of the listeners here. You can find me on LinkedIn, you can find me in a couple other places. To learn more about my views on the Power of Capital, I recommend you picking up the book on Amazon, or you can find more about it on powerofcapital.com. Think of this book as part travelogue of adventures across the globe.

Asha Mehta (38:26):

I talk about launching the fund and contrast the China fund, contrasting then and now, I talk about some of the heroes of investing in this asset class, entering Cambodia with expired passport, traveling to Saudi Arabia and narrowly avoiding the wrath of the religious police. I talk about the massacre on foreign tourists in Tunisia and being there with my children. And I also talk about the shared humanity and the shared opportunity that comes from investing in these markets.

Asha Mehta (38:54):

If you like the investment themes that we’ve talked through, I’d love for you to check us out on globaldeltacapital.com. Our investment philosophy is the same as I’ve talked through today, that we can use the power of capital to generate a return for our investors and to build a sustainable future.

Rebecca Hotsko (39:11):

All right, I hope you enjoyed today’s episode. Make sure to subscribe to the show on your favorite podcast app so that you never miss a new episode. And if you’ve been enjoying the podcast, I’d really appreciate it if you left us a rating or a review. This really helps support us and is the best way to help new people discover the show.

Rebecca Hotsko (39:31):

And if you haven’t already, be sure to check out our website, theinvestorspodcast.com. There’s a ton of useful educational resources on there, as well as our TIP finance tool, which is a great tool to help you manage your own stock portfolio. And with that, I will see you again next time.

Outro (39:49):

Thank you for listening to TIP. Make sure to subscribe to We Study Billionaires via The Investor’s Podcast Network. Every Wednesday we teach you about Bitcoin, and every Saturday we study billionaires and the financial markets. To access our show notes, transcripts, or courses, go to theinvestorspodcaster.com.

Outro (40:10):

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