The three key questions for all investors: Why this strategy? Why now? Why pick it over its peers?
Strong earnings-growth visibility and still-reasonable multiples are combining to make emerging markets equities a very attractive asset class for investors in the current environment, argues Hiren Dasani, CIO – emerging markets at WhiteOak Capital.
“If you look at the forward two years’ corporate earnings growth of the emerging markets, expectations are about 24% to 25%,” he says in the above WealthWhys video. “Why is this growth much higher in the emerging markets? Obviously, the semiconductor story is all about the likes of Taiwan and Korea – so the entire AI capex is leading to much stronger growth in these markets.”
Commodity exposure is also much better in emerging markets compared to their developed counterparts, notes Dasani, who adds: “And, finally, you put that all into the context of valuations. Even after a very strong run-up last year, emerging markets are still trading at about 13x their one-year forward multiple, which is significantly less expensive compared to, for example, the S&P500.”
‘Performance first’ culture
Later on, as he makes the case for entrusting money to WhiteOak, Dasani says: “This is a founder investor-led firm – and the founder is building a ‘performance first’ investment culture, which comes from a combination of a very bottom-up philosophy and buying great businesses at attractive valuations.”
He continues: “We have a time-tested investment process – a collaborative one between the analyst and the portfolio manager – and we have a portfolio construction approach where we try to maximise stock-specific risk while minimising non stock-specific risk.
We have demonstrated our alpha generation comes almost entirely from idiosyncratic stock selection, which makes it a much more repeatable and sustainable process.”
“Our portfolio construction approach allows us to target high alpha with low volatility of that alpha and, over time, we have demonstrated our alpha generation comes almost entirely from idiosyncratic stock selection, which makes it a much more repeatable and sustainable process.
“To summarise, then, WhiteOak is a combination of a great philosophy implemented by a great team; a valuation approach that is very market-agnostic; and a portfolio construction process that allows us to generate more consistent alpha.”
WealthWhys – with Hiren Dasani, CIO of emerging markets at WhiteOak Capital
A full transcript of this interview can be found after this box while you can view the whole video by clicking on the picture above. To jump to a specific question, just click on the relevant timecode:
00.00: Why should investors have an allocation to emerging markets in general?
01.20: Why should investors be allocating to emerging markets right now?
03.25: Why should investors consider this strategy ahead of its peers?
Why should investors have an allocation to emerging markets in general?
So emerging markets are today about 40% of world GDP – but only about 11% of the global market capitalisation. And that tells you how underrepresented the emerging markets are compared to the share of economic output they are delivering.
So there is a significantly higher growth in the emerging markets compared to the developed markets. The macro parameters of emerging markets – whether you look at inflation, say, or government debt – are all looking reasonable. There is no kind of macro crisis in any of the major emerging markets.
And finally, I would highlight the millennial population, which is usually the driver of consumption growth – more than 50% of the world’s millennial population is also living in the emerging markets, whether it is China or India or some of the other bigger emerging markets. So longer-term visibility of growth, young population, fiscal stability, low inflation – all of these are making emerging markets reasonably attractive.
Why should investors be allocating to emerging markets right now?
So, if you look at the last 25 years’ history, in the first 12 years of this century, emerging markets meaningfully outperformed developed markets – from 2000 to 2012. From 2012 till 2024, there was a significant underperformance of the emerging markets. Last year was probably one of the years when the emerging markets had a significant outperformance so there is a worry that, maybe, are we too late entering now?
Our argument is that, if you look at the forward two years’ corporate earnings growth of the emerging markets, expectations are about mid-20s corporate earnings growth – or about 24% to 25% corporate earnings growth in the emerging markets. And, if you put that in the context of the US or other developed market earnings growth, the growth is lower in the US and the other developed markets.
Why is the growth much higher in the emerging markets? Obviously, the semiconductor story is all about markets like Taiwan and Korea – so the entire AI capex is, you know, leading to much stronger growth in markets like Taiwan and Korea.
Commodity exposure is also much better in emerging markets compared to the S&P500 – and, finally, you put that all into the context of valuations. So even after a very strong run-up, emerging markets are still trading at about 13x their one-year forward multiple – and, compared to the S&P500, which is significantly more expensive compared to the emerging markets. So a combination of strong visibility of earnings growth and multiples that are still reasonable are what makes these markets – even today – more attractive to invest in.
Why should investors consider this strategy ahead of its peers?
WhiteOak is a founder investor-led firm – and the founder is building a ‘performance first’ investment culture, which comes from a combination of having a very bottom-up philosophy of buying great businesses at attractive valuations.
We are implementing that philosophy through a very large team of 50-odd investment professionals, which allows us to cover quite a few mid and smallcap names across the emerging market universe.
We have a time-tested investment process – which is a collaborative process between the analyst and the portfolio manager – and we have a portfolio construction approach where we try to maximise the stock-specific risk and we try to minimise the non stock-specific risk.
So our portfolio construction approach allows us to target high alpha with low volatility of that alpha and, over time, we have demonstrated that our alpha generation is almost entirely coming from idiosyncratic stock selection, which makes it a much more repeatable and sustainable process.
So to summarise, WhiteOak is a combination of a great philosophy implemented by a great team; a valuation approach, which is very market-agnostic; and a portfolio construction process that allows us to generate more consistent alpha.
