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High Quality Emerging Markets Businesses


ukvalueinvestment
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With emerging market currencies so beaten down, and the current downward volatility, it seems to me that now is the time to buy and hold high quality EM businesses.  Problem is - what are they?  Are there any businesses out there with the ability to earns high returns on capital year after year, with competitive advantages like: Brands, cost advantages, high switching costs, recurring revenues etc.  I'm thinking about the Coca-Colas, Moody's, Unilever's, Nestles.  Companies that will be going strong in decades.  I'm not interested in financials, commodity sector, anything with government involvement, anything with high dependence on technology.

Can we come up with a list?  Maybe these companies just don't exist outside of US and Europe?

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HDFC Bank

 

-Very well run

-They have been growing earnings at 30%+ for the past 10 years and more

 

There has been a change in the competitive scenario in india. New licenses for payment banks and small lending banks have been issued. HDFC bank may find it difficult to maintain these growth rates in the future

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Guest Schwab711

https://www.msci.com/resources/factsheets/index_fact_sheet/msci-emerging-markets-quality-index.pdf

 

Kind of cheating because I think it's on the NYSE but MSCI HQEM index includes Infosys, so I'd suggest SYNT. Most of their COGs are Indian labor (strong USD increases margins). Company has a reputation as the highest quality BPO company in the world.

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The only ones so far that fit into the criteria I described are Amber and possibly Embraer.

 

Curious - are they cheap?

 

If there are only a handful of good companies in the emerging markets while hundreds of billion dollars are chasing them, the math doesn't seem too encouraging. 

 

 

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Nutresa in Colombia is a well run food company with over 60% market share in key categories like cold cuts and biscuits.  Very sound long term investment here.

 

Embraer would fail at the quality hurdle for me - may be very well positioned right now due to currency but it's just not a great industry long term imho.

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I'd look at the holdings of the Wasatch Frontier Emerging Markets Fund to start. This is not an endorsement of that fund (it has high expenses and a terrible liquidity mismatch), but it is 48% consumer staples and features types of businesses you are looking for.

 

Also some U.S. and European Companies are dominated by EM assets: Carlsberg comes to mind (majority Russia + Southeast Asia).

 

There are lots of country(or region) specific subsidiaries of multi-nationals out there. For example, Coca Cola Icecek in Turkey, and Coca Cola Femsa in Mexico, the brewers have tons of subsidiaries in Africa, as do other staples companies. India is full of them: Hindustan Unilver, Nestle India, etc. Lots of snack companies throughout the world too.

 

Many of these are not accessible to the individual investor. Good luck opening accounts in Nigeria and Pakistan to buy them  ;D

 

I would also check out the holdings of GMO Emerging Markets Domestic Opportunities Fund. This is similarly themed but more EM than Frontier. There is also a EM Domestic Demand ETF, so you can look at the holdings there http://www.emergingglobaladvisors.com/pdf/holdings/EMDD%20holdings.pdf

 

https://secure.wasatchfunds.com/Our-Funds/Portfolio-Details.aspx?fund=WAFMX

Page 55

http://hosted.rightprospectus.com/Wasatch/Fund.aspx?cu=936793819&dt=AR

 

 

 

Brewers

Carlsberg Brewery Malaysia Berhad (Malaysia)

Delta Corp. Ltd. (Zimbabwe)

East African Breweries Ltd. (Kenya)

Florida Ice & Farm Co. S.A.*** (Costa Rica)

Guinness Anchor Berhad (Malaysia)

Guinness Ghana Breweries Ltd.* (Ghana)

Guinness Nigeria plc (Nigeria)

Lion Brewery Ceylon plc (Sri Lanka)

Murree Brewery Co. Ltd. (Pakistan)

Namibia Breweries Ltd. (Namibia)

Nigerian Breweries plc (Nigeria)

Phoenix Beverages Ltd. (Mauritius)

Societe de Limonaderies et Brasseries (Ivory Coast)

Societe Des Brasseries du Maroc (Morocco)

Tanzania Breweries Ltd.

(Tanzania, United Republic of)

Union de Cervecerias Peruanas Backus y Johnston S.A.A. (Peru)

 

Packaged Foods & Meats

Agthia Group PJSC (United Arab Emirates)

Cadbury Nigeria plc (Nigeria)

Centrale Laitiere* (Morocco)

Dairibord Holdings Ltd.* *** (Zimbabwe)

Delice Holding (Tunisia)

Dutch Lady Milk Industries Berhad (Malaysia)

Edita Food Industries-REG S GDR* (Egypt)

FAN Milk Ltd. (Ghana)

Grupo Herdez S.A.B. de C.V. (Mexico)

Juhayna Food Industries (Egypt)

Ledo dd (Croatia)

National Foods Holdings (Zimbabwe)

Nestlé Lanka plc (Sri Lanka)

Nestlé Malaysia Berhad (Malaysia)

Nestlé Nigeria plc (Nigeria)

Nestlé Pakistan Ltd. (Pakistan)

Olympic Industries Ltd. (Bangladesh)

PT Indofood CBP Sukses Makmur Tbk (Indonesia)

Rafhan Maize Products Co. Ltd. (Pakistan)

Vietnam Dairy Products JSC (Vietnam)

 

Tobacco

British American Tobacco Bangladesh Co. Ltd. (Bangladesh)

British American Tobacco Kenya Ltd. (Kenya)

Ceylon Tobacco Co. plc (Sri Lanka)

Eastern Co. (Egypt)

Pakistan Tobacco Co. Ltd. (Pakistan)

 

 

Household Products

Colgate Palmolive Pakistan Ltd. (Pakistan)

Unilever Ghana Ltd.* (Ghana)

Unilever Nigeria plc (Nigeria)

 

Pharmaceuticals

Abbott Laboratories Pakistan Ltd. (Pakistan)

DHG Pharmaceutical JSC (Vietnam)

Egyptian International Pharmaceutical Industrial Co. (Egypt)

GlaxoSmithKline Bangladesh Ltd. (Bangladesh)

GlaxoSmithKline Consumer Nigeria plc (Nigeria)

GlaxoSmithKline Pakistan Ltd. (Pakistan)

Hikma Pharmaceuticals plc(United Kingdom)

Searle Company Ltd. (The)* (Pakistan)

Square Pharmaceuticals Ltd. (Bangladesh)

Traphaco JSC (Vietnam)

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