I was recently invited to present on emerging growth opportunities from the China Internet sector to several of the largest institutional investors in South America. My trip brought me to Lima, Peru, Bogotá, Colombia and Santiago, Chile. The South American institutions' natural enthusiasm for Chinese investments was refreshing. It is not surprising that South American investors are already comfortable with China. According to a 2018 report by the Economic Commission for Latin America and the Caribbean, China has invested close to $90 billion in the region between 2005 and 2016.1 While the South American investors were interested in emerging growth opportunities in China, locally, I saw a business climate which, I believe, is compelling.
Many investors are attracted to emerging markets because of their low valuations relative to the United States. However, stocks with low valuations without a catalyst for growth do not necessarily make good investments. Broad-based emerging market funds are dominated by value sectors such as financials, industrials, energy and materials which do not typically include high-growth, innovative companies. This is why broad-based emerging markets have underperformed US stocks over the past decade. On the other hand, consumer technology firms tend to be entrepreneurial, disrupt traditional business models, and often gain large market share over a short period of time. We believe emerging market consumer technology represents a high-growth opportunity at an attractive valuation.