This webinar was recorded on October 23, 2019. View more upcoming webinars and recordings.
Overview: Carl Delfeld, Chief Analyst of Cabot Global Stocks Explorer shared how you can make money in this volatile age of U.S.-China rivalry. Plus, he reviewed 3 of his best global stock picks, so you don’t want to miss this!
[00:00:04] Hello and welcome to today’s Cabot Wealth Webinar — Make Money in the Age of the US-China Rivalry. I’m your host, Chris Preston, Chief Analyst of the Cabot Wealth Daily advisory and managing editor here at Cabot Wealth Network. With me today is Carl Delfeld, Chief Analyst of our Cabot Global Stocks Explorer advisory.
[00:00:25] Carl is here to talk about the importance of owning high growth overseas stocks and how to invest internationally without buying stocks that are potential casualties of the ongoing U.S.-China trade war.
[00:00:36] He’ll also give you several stock picks from across the globe. This is an interactive webinar, which means we will be fielding your questions after Carl’s presentation wraps up. So if you have a question, feel free to ask it at any time and we will try to get as many of them as time allows. Just keep in mind that we cannot offer advice in regards to your own personal investing situation or portfolio. First, let me introduce Carl.
[00:01:00] Carl has worked in finance all over the world. He received his masters in law and diplomacy at Tufts Fletcher School, worked for the First National Bank of Boston, now Bank of America, in London, serving as director of the Japan and South Korea group, served as vice president at the investment bank Robert W. Baird and Company developing new business in Tokyo, Hong Kong and Sydney. Was Asia adviser to the US Congressional Joint Economic Committee, the US Finance Committee and the US Department of the Treasury, wrote for Forbes Asia and the Far Eastern Economic Review, served as a member on the US National Committee on Pacific Economic Cooperation and Japan-US Friendship Commission, was chairman of the Asian Pension Forum, and wrote a book titled Red, White and Bold: New American Century.
[00:01:48] Last December, Carl joined the Cabot Wealth Network team as chief analyst of the Cabot Global Stocks Explore advisory, which recommend stocks from all over the globe. And today, he’s here to share with you a few of his latest picks, as well as an often overlooked mega region that demands your attention as an investor.
[00:02:07] So I’ll let him get to it. Carl, take it away.
[00:02:11] Chris, thank you very much for that kind introduction. And I want to welcome everybody to this webinar. Thanks for joining.
[00:02:20] We’re going to discuss making money in the age of U.S.-China rivalry. At Cabot Global Stocks Explorer we focus on international markets, particularly emerging markets. We tend to favor growth, but we also look for value opportunities when we can find catalysts that’ll push these stocks forward. We go top down, end up picking specific stocks and we look at emerging trends and opportunities.
[00:02:53] I don’t think there’s any topic that’s more prominent right now in the media than China and U.S.-China, competition, rivalry. And there’s good things about it and some other things that you need to be aware of to avoid picking the wrong stocks.
[00:03:16] Let me just give a little just a little bit of historical perspective here. You know, we all think that this U.S.-China rivalry just started last year, last month. But actually, when you really think about it, it goes way back to the beginning of America. Because as America got its independence when the Treaty of Paris was signed in 1784, China was the largest economy in the world. Most people don’t realize that China and India traded places for centuries.
[00:03:49] The U.S., of course, was a brand new country but it was very much outward looking, especially New England, to trading with the world. And in fact, just four months after the Treaty of Paris, the Empress of China set sail for Canton, China, carrying twenty thousand silver dollars, two thousand animal furs and 250 casks of ginseng sailed all the way to Canton, China, came back with silk, tea, porcelain tea sets, one of which was bought by George Washington. And it was a 14 month journey back and forth. And it had a thirty five percent rate of return, which isn’t bad, but that was a lot of risk, obviously, going back and forth to China.
[00:04:40] Now, at that time, what was the United States? It was really, at best, a fledgling frontier market. But as it moved into the 19th century, it developed into the best emerging market of the 19th century.
[00:04:56] Let me just pause here to describe what is an emerging market. I think there’s five characteristics.
[00:05:04] The first is high economic growth rates. Normally it should be multiples of more developed markets,.
[00:05:11] Definitely high perceived risk and volatility that goes with the territory.
[00:05:17] High levels of foreign direct investment. By this I mean capital flowing into real assets like factories, railroads and so on.
[00:05:27] Normally an emerging market has a demographic edge, meaning it usually has a a youthful, fast growing population, high levels of immigration,and also movement of people from rural areas into urban areas.
[00:05:45] And then lastly, it has some sort of big competitive edge. Oftentimes it’s cheaper costs like cheaper labor costs.
[00:05:53] So if you look through the frame of those five characteristics, you can see that America really hit on all five of them. And that’s why as it moved into the second half of the 19th century, let’s just say 1860, when the civil war began to 1900, it really took off. We had very high growth rates. Just to give you a few data points:
[00:06:21] In 1860, the U.S. represented 7 percent of global manufacturing. By 1880, it was over 15 percent. And by nineteen hundred it was twenty five percent, and America had become the largest manufacturing country in the world in terms of the size of its economy. I mentioned China was the biggest economy at the time of the American Revolution and then it went into a period of relative decline. And so it was kind of on a downward trajectory. America was going sharply upward and they crossed in 1870 when America became a larger economy. And then in 1890, America became the largest economy in the world and still is.
[00:07:11] So those four decades were and I think you would agree, quite impressive. But in the last four decades, the last 40 years, another country has posted an even more impressive performance. And of course, that country is China.
[00:07:29] If you look at China in 1978. No. Well, let me just mention that we just were commemorating the seventieth anniversary of communist China. The gang, which took power in 1949 and from 1949 to 1978. Not much happened. If you look at their total size of their economy, it just flatlined, obviously, because they chose the Soviet model. They were isolationist. And, you know, everything was wrong, basically. It wasn’t until 1978 when Deng Xiaoping came to power and initiated his market reforms that the Chinese economy came to life. If you look at China in 1978, it had 88 percent poverty rate. Its whole economy was only 2 percent of the world economy and its exports were negligible.
[00:08:33] And 80 percent of Chinese people lived in rural areas. But as these reforms kicked in, as they join the WTO and other economies started trading with them, that economy really took off, as you know, double digit, 10 percent, 11 percent economic growth rates year after year for a while there. And so if you look now, four decades later, just like America had that surge, they’ve had this tremendous surge.
[00:09:02] So now they are the number one exporter, a position they have had for a while. They’re the number one manufacturing country in the world. They achieved that title in 2010, taking over from the United States. They’ve moved 400 million people from rural areas into urban areas. So that’s a huge reversal. And instead of 2 percent of World GDP, they now represent 18 percent just behind the United States.
[00:09:35] So you have two big countries, totally different political and economic systems. And as you can see by news accounts the U.S. is finally waking up that, you know, that China is a rival and we need to pay more attention to what’s going on there. And we need to compete as well.
[00:10:05] Now to two things symbolize this. One is there’s a ranking by Fortune called the Fortune Global 500. It ranks the top 500 companies in the world by total revenue. I’ve been following this for several years and America, as you might guess, ranks number one with one hundred and twenty one companies out of the 500. But it might surprise you that China is at 119, just two behind us. The other interesting aspect here is that of that 119 companies from China, eighty two of them are state owned companies, which again highlights the different role of the government in China relative to the US government. They’re very involved. I’m going to have some some advice on state owned companies a little bit later when we get to the recommendations.
[00:11:02] The other thing that came out just this week is Credit Suisse, the bank, does this wealth survey each year. They do a number of surveys but one of them is they calculate the top 10 percent in terms of net assets or wealth in the whole world. And again, no surprise, America comes in number one with one hundred million people are in the top 10 percent in terms of world assets. China is ninety nine million right behind us.
[00:11:36] Of course, their population is four times bigger. But it sort of gives you a little bit of a picture of what’s going on, which is not always followed by the media.
[00:11:49] Hhow did China do it over the last four decades? The model they followed really should be quite familiar to us. It’s the same economic model that Japan and the Asian tigers like Taiwan, South Korea, Hong Kong and Singapore followed. It’s in short very top down, state driven, promising sectors are identified and state owned banks and state sponsored financial companies channel capital there.
[00:12:24] There’s competition. No question. Competition is encouraged, but it’s very much directed from the top. Exports are are promoted to gain foreign exchange and also they try as much as they can to protect their domestic markets from competition. And that’s what all of these countries have followed. And that’s really been China’s recipe as well.
[00:12:52] Let’s move to emerging markets. The best way to frame emerging markets is through EEM. Many of you are probably familiar with EEM, it’s the MSCI Emerging Market Index ETF. An ETF is a basket of securities. EEM is a basket of eight hundred different emerging market companies. Of that, about thirty five percent are Chinese and the balance are twenty five other countries. But the big ones are South Korea, Brazil and South Africa. And so a lot of the countries we’re going to talk about in a moment have very small allocations to EEM. So if you’re buying that and holding that, you’re really getting exposure only to a small number of countries.
[00:13:50] How has EEM done? How are emerging markets done? Let’s go to the first slide. It really is a tale of two decades. In front of you right now is EEM from 2000 to 2010. EEM is that orange line on the top. You can see it’s definitely had quite a bit of volatility there, especially as it moved into the global financial crisis. But it recovered quite sharply as well. So you can see one hundred and fifty five percent return.
[00:14:24] At the bottom there is green. That’s the US total stock market, which was negative if you take the whole the whole decade into account.
[00:14:36] Now let’s look at 2010 till today, basically. And you can see a total reversal. The emerging markets have struggled and you can see now they’re at the bottom of that orange line. Still positive, but not terribly impressive. And then you can see in the US total market, and U.S. small cap have led the way.
[00:15:01] What’s to come in the fall the next decade? Nobody really knows. But one reason to look at international emerging markets is that they, as you can see, have underperformed. So if you believe in a reversion to the mean, meaning that things kind of rotate back and forth, the next decade my expectations are that they’ll do better.
[00:15:29] In terms of US markets, keep in mind one thing. We all want U.S. markets and U.S. companies and U.S. economy to do well. But keep in mind now, after this run, that bull market that we’ve experienced over the last decade, if you take the value of all U.S. publicly traded stocks, it now represents fifty five percent of total stock market value, which is quite extraordinary. That means that you take all the stocks in the world and added up their value, U.S. would have 55 percent market share, which is quite extraordinary. And then I think there’s there’s some room for catch up is what I’m what I’m trying to say. So keep an open mind to emerging markets.
[00:16:19] OK, let’s keep going. Now let’s start. Start with a map of Asia from our perspective, meaning a Western perspective. Asia is an away game. Asia is six thousand miles from the west coast of California. One of the advantages that America has is it has relatively benign neighbors to the north Canada, to the south of Mexico and Latin America.
[00:16:54] And then if you look to the east, it’s three thousand miles to Europe and six thousand miles to Asia. And this is really a key positive for the US in terms of its geopolitical strength. It starts from a very strong base.
[00:17:12] Asia here is an away game. And obviously you see China, Australia. In between in the cut in the colored areas, there is Southeast Asia, which we’re going to talk about in a little bit more detail in a moment.
[00:17:30] My point about China, is China and the US are about the same size in terms of land area. Of course, China has four times more people. And also, China shares borders with 14 different countries. Not all of them are friendly. It has some water issues. We could talk about this map for some time, but I think it’s just good to see the perspective.
[00:18:03] The other big point I would make here is China is bordered by countries like South Korea, Japan, the Philippines, Malaysia, Indonesia, Australia, India, which are relatively friendly to the US, in some cases their allies. So I think that’s another big positive for America.
[00:18:33] I just thought it would be good to start from kind of how we look at Asia.
[00:18:37] This is how China looks at Asia. Obviously, for China, it’s a home game. These are their neighboring countries and sea lanes. And so when they look out, this is what they see. They see Japan and South Korea and Russia there. They see Taiwan sitting right in front of them. The Philippines and Southeast Asia are sort of their neighborhood. Sometimes I find stuff like this pretty interesting because it makes you think a little bit differently about, why China reacts the way they do. A lot of it has to do with their geography and history.
[00:19:24] U.S.-China rivalry, I think is going to be played out in particular over these four battlegrounds:
[00:19:33] The first is technology. There’s no question that this is probably the hottest topic right now because as China has moved up the food chain, they’re taking dead aim for what I would call advanced technology. By that I mean things like robotics, artificial intelligence. And they’re trying and are very determined to capture what I call the commanding heights of the global economy. Now, this brings them in direct conflict, of course, with U.S. tech firms, Japanese tech firms, Korean, European. And so there’s really going to be an intense competition for these markets.
[00:20:17] China came out with a plan you might have heard of China 2025, where they really laid out in pretty specific terms their goals. I think tactically it was a big mistake because it drew a lot of attention to them earlier than they would have liked, I think. But technology definitely is an area to watch. And we have all seen the controversy about Huawei, the telecommunications company, which which has captured 70 percent of global telecom equipment markets. And you’re going to see that issue come back and forth constantly.
[00:20:58] The second is resources. By that, I mean natural resources, energy resources. One area that I follow very closely is what I call rare metals, rare earths. And that is basically another word for them is technology, metals.
[00:21:18] And for example, if you have an iPhone or any sort of smartphone, you have probably 14, 15 of these rare earths and rare metals. They’re in all sorts of technology products. And China over the last two decades has captured 85 percent of rare earths and similar shares in many of the rare metals. Now, I follow these very closely. I’m going to give you an idea.
[00:21:45] China has about 85 percent market share. The only other company that has significant market share is an Australian company called Lynas. I’m following Lynas. They have about a 14 percent market share. I’ve been recommending this stock through a special report. It’s gone from a dollar 13 to a dollar seventy seven this year. The symbol is LYSCF, that’s the OTC symbol on the US market. They also trade in Australia.
[00:22:23] This is a somewhat aggressive stock. But I think China, since China has this dominant position, they are definitely going to use it, use it as leverage from time to time. And I think stocks like Lynas will be a big beneficiary. Lynas is opening a refinery in Texas, which is good news. And they also have a refinery, a processing center in Malaysia. Very good company. So that’s one company.
[00:23:02] Finance and capital, definitely, as you’ve seen, the U.S. and China are jostling a little bit in terms of capital markets and finance. China, corporate companies, especially state owned companies, have a fair amount of debt. I don’t need to mention the U.S. issues on the debt side. Even our national budget deficit is now close to a trillion dollars a year. So basically both countries want access to capital for government expenses, but also for their companies.
[00:23:43] And so you’ve probably seen that there’s some legislation in the US that wants to block certain Chinese companies from listing on the U.S. market. And that’s going to be a very hot topic going forward. And so in terms of Chinese companies trading in the U.S., I think you need to stick to quality. In general, I would avoid state owned companies if at all possible. You need to show a little bit of caution there. But in general, there’s also some finance companies in China which I’ve recommended especially in terms of financial services, which are growing quite rapidly as the Chinese middle class, which is estimated between between 300 and 400 million grows, they’re all going to need financial services as do countries such as India and so on. So there’s some good ideas there.
[00:24:41] Geography. We already talked about but there’s one area I want to zero in on is Southeast Asia. Now, the reason I bring in Southeast Asia, if you remember that map and I have another I think what map coming up right here in Southeast Asia, all these countries are in the blue here. The reason it’s called Southeast Asia, it’s south of China and east of India.
[00:25:12] These 10 countries together represent six hundred and fifty million people. That’s double the US population. They really get pushed aside. Not many people pay attention to them because China, India, Japan, US grab all the headlines. But these are some of the most promising emerging markets in the world. They have some of the highest growth rates. In terms of those five characteristics I went through a few moments ago. They are hitting each one of those right at the bull’s eye.
[00:25:49] And so I want to talk a little bit about the the the the value and the investment potential of these countries and the companies that tap into them.
[00:26:04] The other thing I want to mention is that if you look at Asia and you look at U.S.- China and U.S. allies and China and Chinese allies, you know, there is a balance of power that’s developing and it really runs right through these 10 countries. And that’s why all these countries I mention India, China, Japan, South Korea, Europe, US are all pouring capital into these markets.
[00:26:32] The biggest investor in these markets is China. Japan has long held big market shares and a lot of different products, for example. Japan has an 80 percent market share in terms of autos in these 10 countries. The wind is at the back of these countries. OK. Sometimes you’re calling motorcycle markets, which is why I have this slide. If you go there, you’ll see families, four or five people on one motorcycle, which is quite amusing and I guess dangerous. But. So that’s another reason I call them motorcycle markets,.
[00:27:21] These markets have what I call the tiger cub edge. And by tiger cubs, I’ve mentioned to you the Tigers before, right? The Asian tigers — South Korea, Taiwan, Hong Kong, Singapore. These are the tiger cubs. I won’t go through each one of these, but they have definitely have a demographic edge. They’re very young. Average age. Twenty five years versus thirty five years in China. Forty five years in Germany and Japan. And the US has pretty good demographics, a little bit better than that. Their middle class is booming.
[00:28:01] And so they need to buy stuff and they’re buying just about everything you can think of in terms of consumer items. And then the other thing is, because of the smartphone and the Internet, they’re able to leapfrog to the newest technologies and that’s another big edge that emerging markets have over more developed markets. They can catch up much more quickly. Foreign Investment I already mentioned that everybody is falling over backwards to invest in these countries.
[00:28:33] Higher growth, a lot of them are 6-7 percent growth, which is two to three times the US, even though our economy is pretty strong and it’s in some ways higher than China. Chinese growth seems to be slowing a bit. And so these countries are growing faster, which is why China and a lot of these countries are moving manufacturing to these markets.
[00:29:01] The other thing, it’s nice to have some exposure to these markets because they don’t necessarily go with more developed markets. In other words, they give you a diversification edge.
[00:29:16] And then lastly, I mentioned earlier, strategically, they’re very important. They’re right at the heart of Pacific trade flows and at very key choke points between the Indian Ocean and the Pacific Ocean.
[00:29:36] Just to give you one example, this chart is interesting, I think. It goes back to you. It kind of falls off here. Both these lines start around 2009. The light blue line is the Jakarta Stock Exchange, of course, in Indonesia. Now, Indonesia is a country that I’m following and quite fascinated with. That’s that’s a country that is really overlooked. I mean, they have 250 million people, which is not that far behind the United States. It is a democracy. For the last 20 years, they’ve had smooth elections. Every six years they have an election and it’s gone relatively smoothly.
[00:30:24] They’re rich in resources. Again, they have all those 10 attributes, the tiger cub attributes we just went through.
[00:30:32] Here’s their stock exchange over the last 10 years. And that’s the top light blue line. And you can see it’s done pretty well. It’s done pretty well. Now, the bottom line, that dark blue line is China. That’s the FXI ETF. And those are the largest Chinese companies. I think it’s the top 30 companies in China. A lot of those are state owned. I think most people would be blown away to realize that Indonesia has beaten the largest 30 companies listed in China. But there you have it. Those are the facts.
[00:31:19] Let’s get to some investment ideas. Your first option, and it’s not a bad one, is to go with ETFs. Here’s six of them. As I mentioned, some of you more familiar with ETF than others. So let me just say that each one of these, let’s take the Vietnam VNM, which is another promising country which is growing quite quickly. I mean, I don’t particularly like the government, but in terms of the energy of the people and the growth, it’s definitely there. Vietnam, you know, is roughly 100 million people. It’s not a small country. The Philippines is over 100 million people. Indonesia, I mentioned is 250 million people.
[00:32:11] So these ETF are basically a basket of the largest stocks from that country’s market. And you can buy right on here. You know, whetever brokerage account you use, you can easily buy it and sell it. You can use options, trailing stop loss and so forth. So this is the easy way. Now, if you want to just buy one, this last one in Southeast Asia ASEA is all of them combined.
[00:32:42] That’s one way to go.
[00:32:46] Now, another way to go is to buy individual stocks. These are the Cabot Global Stocks Explorer we limit ourselves with some minor exceptions to stocks trading on US markets. So let me give you just a few here to get going. The first is what I call the J.P. Morgan of Singapore. Now, that is DBS Bank, which stands for the Development Bank of Singapore. This bank goes back to 1968. Temasek, the Singapore state owned wealth fund, has a big chunk of equity in this bank. It is the premier bank in Southeast Asia. It’s got 400 branches spread throughout the region in 50 different cities. It’s trading at just about 11 times trailing earnings. So I think it’s inexpensive and it has a four point eight percent dividend yield. And it’s rated by multiple agencies as the safest bank in Asia. So you get the picture. This is high quality. This is not a stock that’s going to double in a year. But if you buy it, even in a tough market, it’s going to hold pretty firm and it’s going to incrementally move forward with market. So it’s a great proxy for Southeast Asia.
[00:34:22] Another strategy that I want to mention to you is what I call a pairing strategy. And let me use SE as an example. SE Ltd is a Singapore company in the same sorts of markets that, for example, Ali Baba is in.
[00:34:46] One way that I would recommend is through pairing. So, for example, you could pair Ali Baba with SE. Babs pf course, BABA is a giant, right? They have like 50 percent market share in China. In ecommerce and in all sorts of other related areas. Baba’s now at one hundred seventy dollars. I like it. But, you know, I took my near term target for Baba is two hundred. I think it’s a great core holding for China. Of course, a private company, just a juggernaut, basically. But, you know, you’re not going to get a double out of Baba unless something remarkable happens.
[00:35:34] SE, of course, is not making money. It’s losing money. But it’s growing quite quickly in terms of its marketplaces. It’s the number one e-commerce and gaming company in Southeast Asia. It has a licensing agreement with Tencent to market their games in Southeast Asia. Just to give you an idea how a stock like this can move let me get my my numbers in front of me. So SE has gone from ten dollars in January, went up to thirty eight dollars in a middle mid August. Since that time has pulled back to twenty seven dollars. So I like it here. It’s going to be a while before it makes money. But again, it’s growing quite quickly in these very vibrant markets.
[00:36:39] The way I look at it is if you pair it with a barber, you have an aggressive play and a conservative play. I think that’s a that’s a good strategy. But you of course, you need to watch SE more closely than Baba.
[00:36:59] Another stock I like, we haven’t talked about India and India technically is not a Southeast Asian country, although some people put it in the same category and it shares a lot of the same characteristics.
[00:37:16] If you think about it, India and then through Southeast Asia and then upward to China, Japan. So it’s one continuum and here’s another great I think a great India idea to get going. ICICI Bank. It’s one of the leading private Indian banks. India has huge potential in terms of banking because there’s there’s hundreds of millions of Indians who need banking services and ICICI is a leader in digital banking in India. Again, it’s a bit more aggressive than the DBS bank idea, but I think it’s a great place to get started in India.
[00:38:07] Let me mention one other idea.
[00:38:10] Again, going back to my pairing strategy, and that is, of course, everybody knows Starbucks, SBUX and Starbucks has had a very good year. It started at about sixty one dollars. It went up to just shy of one hundred dollars. Ninety nine dollars. Since then it’s pulled back to about eighty five eighty six dollars. Now everybody’s got their own opinion about Starbucks. But one thing you may not be familiar with is that they have made a huge play on China. They’ve been there for over 15 years. They have thousands of branch. I think they expect to get to like 4000 stores in China. They’re growing all over the world. But China, they’ve made a major bet on. They’re doing well there but they have a competitor and their competitor is called Lukken Coffee. The symbol is LK.
[00:39:17] Lukken has been growing tremendously fast this year in terms of opening new stores. Now, their strategy is different. They’re not looking to build a place where people can sit down with their friends and sit on their laptop or, you know, have a business meeting. Their stores are more takeout and delivery outlets.
[00:39:47] They’ve grown so fast in the last year and a half that by the end of the year they expect to have more outlets than Starbucks. Their coffee is also cheaper. It’s about 50 percent cheaper than Starbucks. I have no idea about the quality, although I like just about any coffee. And again, they’re not making money but their numbers are all very, very impressive. Lukken started theyear around 20, went to 26. It’s kind of back at twenty dollars again. It was up five point eight percent yesterday.
[00:40:29] So again, this is an aggressive idea. I want to be upfront about that. But if you like the sector, you might pair Starbucks with a lock and coffee.
[00:40:44] I will mention one more thing about coffee, and that is I’ve researched and written about this, which you can find on our Web site. Basically, as a country develops in Asia, coffee consumption goes way up. Obviously, we think of most Asian countries as tea drinking societies and they are. But if you look at Japan, South Korea, Taiwan, all these countries, coffee consumption grows quite quickly with economic progress. That’s why Starbucks is there. So I kind of I like Lukken as an aggressive idea.
[00:41:28] That’s it for my ideas right now. I know some of you may have questions, comments, which I look forward to discussing it with you. And I I turn things back to Chris.
[00:41:42] Thanks, Carl. I’ll give you a couple minutes to catch your breath. And like Carl said, if you have been in a question, now’s the time to do it. We’ll get to them in just a minute.
[00:41:52] First, let me just tell you a little bit about how you can sign up for Carl’s Cabot Global Stocks Explorer advisory — I sent a link a minute ago for those of you monitoring the question box. For those of you who listen today, you’ll receive an e-mail in your inbox with a special discount offer to sign up. That’s reserved again exclusively for today’s listeners.
[00:42:18] New subscribers can try Cabot Global Stocks Explorer for just one dollar for the first month. That’s 30 days. And you can cancel at any time. And again, that’s just for people listening today.
[00:42:30] When you subscribe, what you get is twice monthly issues with analysis, stock recommendations from around the globe and updates on current holdings. You get email updates and trade alerts between each issue, 24/7 online access to all current issues and updates as well as back issues and updates, plus direct access to Carl for answers to any investment questions you may have.
[00:42:54] Speaking of questions, let’s get to the ones you have right now. Let’s start with just a clarification. The stocks you just mentioned, are those all available on U.S. exchanges?
[00:43:11] Yes, they are.
[00:43:13] OK, so they’re all ADRs.
[00:43:15] OK. Here’s one: outside of Southeast Asia is there a particular non-China region you like right now? You mentioned India. Would that be the one?
[00:43:31] Well, I think India has some some real opportunities. There’s a couple of ways to look at this. Where a company is based is becoming less and less important and where they do business is becoming the key issue. So, for example, I mentioned Starbucks, of course you think of it as a U.S. company? But they’re doing business all over the world and they made this huge bet. I mean, most people hold Starbucks, don’t realize how much China risk they have in that stock. Right. It’s really the company.
[00:44:07] So there’s plenty of U.S. companies and we’ll recommend U.S. companies that, you know, have have have big global footprints and are growing fast. But other regions — I’ll look anywhere, really.
[00:44:22] Australia, for example, is a great proxy for Asian growth and emerging market growth. We don’t think of Australia as an Asian country. But really, if you look at where their companies do business and where they make their money, where they trade, it really is with with Asia.
[00:44:40] Latin America, for example, I recently had a recommendation in Mexico. When you think about Mexico, what do we think about? We think about negative things. But Mexico actually is becoming a global manufacturing plaque platform for North America. By this, I mean that the labor costs in Mexico now are less than they are in China. So people are moving manufacturing from different parts of the world to. I mean, some is going back to the U.S. We want it to go back to the US. But if it if it doesn’t go back to the US, the next best idea is Mexico. And so I think Mexico has been a little bit a little bit overlooked and hasn’t done particularly well, but I think there’s some great value there.
[00:45:35] So that’s one other example.
[00:45:39] Thanks. Now you mentioned Mexico Carl, here’s another question from an apparent Cabot Wealth Daily Reader that you recently wrote about Swiss stocks. Is that an area you recommend investing?
[00:45:56] Well, the Swiss stocks, yes, I have written about that and Swiss stocks, of course they’re very high quality. First of all, you know that they’re the highest quality and two their very outward looking so the fact that they’re incorporated in Switzerland is great because they have very high standards and very long histories. But they also are very global, so they’re doing business all over the world. So they’re great. Yes, I think they’re great ideas. And, some of them are attractive right now.
[00:46:37] OK, here’s something I haven’t touched on, Carl, have that the Hong Kong protests been impacting Chinese stocks, and if not, are you worried they will?
[00:46:50] Well, definitely. I’ve been watching. It’s interesting. I’ve been watching it quite closely. And it’s a very sensitive issue, as everybody knows.
[00:47:01] And, each day you wonder, is this the day that, they’re going to move in and quell, physically the protest? I think they’ve been hoping that it would just die out. But it’s remarkable that it just the intensity seems to if anything kept increasing. So, yes, definitely. And the other thing about it is that it has been impacting not directly, but obviously Chinese stocks that are listed on the Hong Kong Stock Exchange, so-called red chips, yeah, definitely. It’s impacted damage. It’s delayed IPOs on the Hong Kong Stock Exchange. Wealthy Chinese are moving some of their assets to Singapore and other markets. Capital flight is always a concern.
[00:47:57] So, yes, but on the other hand, I’ve been looking for Hong Kong stocks that have been beaten up. It is remarkable how resilient the better companies that are listed in Hong Kong have been. I mean, they’re off a bit. You know, maybe 15 percent or something like that. I was hoping they would trade off more sharply, in which case I could recommend them. So, yes, it’s definitely something to watch closely. Again, it all goes back to the US-China rivalry in some regards, because, you know, they’re waving U.S. flags there. But I think the U.S. government’s being very, very careful to be as quiet as possible.
[00:48:39] OK. Here’s a question about a specific Chinese stock. Carl, you mentioned Alibaba is a safer play. Is that the case amid the U.S.-China trade war?
[00:48:53] Well, I guess, safe is a relative term. I mean, Baba hasn’t done all that well. I mean, it’s it’s a good stock this year and I think you could argue that based on their numbers you would expect them to do better. Obviously as they get larger and larger the growth numbers from a percentage point of view are going to decline. Where they need to grow now is in more the more rural areas because their penetration rate in the urban areas is already remarkably high. So part of the reason that the stock is slowed down a bit is due to that.
[00:49:33] The other thing is that this U.S.-China tension, is definitely pushing down a little bit on the stock. So is there downside risk to Baba. If things deteriorate sharply in terms of the US and China? Yes. I mean we could go to one forty, one forty five, one fifty definitely? But I think there’s enough strength there that I would be surprised if it went down more than that.
[00:50:13] OK. Thanks. I think we’ll wrap up the Q and A there. Thank you, Carl, for that today. And thanks to everyone for joining us today and for all the questions.
[00:50:30] We’ll be back next month on November 14th at 2:00 p.m. Eastern with another webinar, this time featuring Tyler London, who is editor of our Cabot Small Cap Confidential advisory and our newly launched Cabot Early Opportunities advisory, which is what the subject of his webinar will center on. So mark that on your calendar. In the meantime, again, watch your inbox for a special offer to Carl’s Cabot Global Stocks Explore advisory as a reward for joining us for today’s webinar.
[00:51:02] That does it for us. For Carl Delfeld and the entire Cabot Wealth Network team, I’m Chris Preston. See you next time.