Is Emerging and Frontier Markets Investing Still Worth It? - with Asha Mehta
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Welcome to Money for the Rest of Us. This is a personal finance show on money, how it works, how to invest it, and how to live without worrying about it. I'm your host, David Stein, and today is episode 411. And Camden and I are having a discussion with a super smart investor, Asha Mehta, on emerging markets and frontier markets. She's a quantitative investor.

We'll start with having Camden introduce Asha and what we're covering today, and then we'll get into the interview. Just a note, I'm recording this introduction separate from Camden's recording of Asha's bio because he's traveling in Japan currently.

We actually held the interview while he was in Japan. I was in the US and Asha, I'm not sure where she was. So we'll go ahead and get started with introduction and then we'll jump right in to the interview. I think you'll enjoy it because I definitely learned a lot about what's going on with emerging and frontier markets and quantitative investing. Asha Mehta, CFA, is the founder and chief investment officer of Global Delta Capital. Her

Thank you.

Asha is an active advocate of financial literacy and financial empowerment. She is a supporter of several related organizations, including Compass Working Capital and 100 Women in Finance. Our discussion focuses on subjective versus objective decision-making when investing, the importance of data, and what we need to understand about emerging and frontier market performance. Let's jump in.

Well, I'm really excited to have this opportunity to talk with you. And I know that David is as well. I found the book to be very interesting. I think it's amazing just the sheer breadth and depth of experiences that you've had just across investing in different markets in different countries. And reading through the book, I think what I found very interesting was just, like I said, the amount of experiences. And

My first question was kind of about objective versus subjective decision-making. I know that in quant investing, you have a lot of data. The goal is to make very objective decisions based on kind of the breadth of data and looking at all of the different markets. Though I found it interesting in the book with all of your experiences, it felt like you did always have this opportunity to go to the country you're going to invest in. And to me...

Travel and those experiences are always very subjective. They're passed through our personal lens. And I was just wondering how our subjective experiences interplay with an apparently objective decision. And is it possible to make a truly objective decision by itself in your experience?

Camden, thank you. Thanks for reviewing the book. I'm honored, delighted, a little bashful, but mostly just thrilled that you've read the materials. And thanks for having me on this session. Excited to be here with you and your listeners today. And thank you for a very provocative question. I think you're right. And it highlights some of the most

relevant issues in this environment, which I characterize as really the era of big data. Data is readily available. The cost of technology has plummeted. I see across the investors I speak to fundamental investors who are rapidly moving towards sophisticated quantitative techniques, data-driven techniques to adopt into their processes.

So I think you're asking a question that a lot of people grapple with. My own background is as a systematic manager, as you noted from reading the materials. And I think the materials, to your point, are a little bit unique because I am using a strategy that's designed to be objective, designed to be mathematical and statistical in nature. And yet I spent time on the ground within the countries, hearing about the themes, looking to validate my thesis, looking to gather new ideas.

And the way your question is often posed to me is, you know, what's the point of that? If I'm using a model that's already been constructed and that it's entirely data driven, what's the point of being on the ground within those markets? So I think two points I really want to emphasize. One is that I do think that there is great value in using an objective data driven systematic process.

And it's absolutely true that I characterize my investment strategy as systematic and its backbone. And some of the advantages of that type of approach are just very, very palpable. I think relevant across all markets, but even more relevant in the context of inefficient markets like emerging markets.

whether it's breadth, the fact that I can, using a piece of software, evaluate 15,000 securities all at once. That is a tremendous advantage relative to a fundamental analyst who is constrained by how much information they can carry in their brain, essentially. It's a real tangible advantage if I'm looking to trade a stock in Vietnam and it looks attractive on many characteristics, but it's trading at its foreign ownership limit.

Using the power of technology, the power of quantitative systems,

I can switch out that stock, that desired exposure for another stock in my portfolio that's also listed in Vietnam, has an attractive valuation profile, looks good on other characteristics and perhaps isn't treating at that foreign ownership limit. So huge benefit and using a quantitative strategy, the discipline that comes from quant, the multi-factor components that come from quant are all very palpable again in all asset classes.

So what am I doing on the ground in these markets and why do I spend time there? Part of it is pure passion. I just really enjoy being there, feeling the energy and kind of seeing the innovation with my own eyes. And I think, again, your question is a provocative one because it really speaks to the opportunity for somebody who's on the ground to systematize those insights.

Again, my view is that technology has been commoditized. The cost of building a quantitative system has literally plummeted. And so my view going forward is that the alpha for investment managers today, it belongs to those who know how to use the advantages of quant, but are able to identify what

What are the secular changes that are occurring? What are the structural changes? What's different this time? What data set are we not factoring in? What theme are we not factoring in? That's where idea generation comes from. That's where there's the ability to tilt the portfolio. Ultimately, the man versus machine or woman versus machine sort of debate in my case is

I am a heavy subscriber to the view that you really need both, that it's the human that's directing the machine. Whatever you can automate, absolutely automate and take advantage of the advantages of automation. But even a machine needs to be stewarded.

Asha, you know, when we've interviewed back in my prior life, interviewing quant managers, one of the challenges was sort of keeping their models up to date because it's so changing and with even more AI, high frequency trading. Is it possible for a quant manager to maintain an edge? And if so, how frequently are you having to change your model? Or are there persistent factors that just work for behavioral reasons or something along those lines?

I think it's a fair question. Well, I think what we've, and David, before the show, you and I were just joking that it's been a tough market to be in as an institutional investor over the last decade. There's only been a handful of strategies that have been effective over the last decade. So your question is a really good one. Where is the alpha and how does one continue to generate that in an ever-changing world?

So to answer your question directly, do models need to be updated? I agree with you. I think there was a lot of advantage for quantitative managers early on and in markets that hadn't been fully institutionalized where, again, you could kind of take advantage of the benefits that come with breadth, that come with discipline, right?

point some fundamentally based factors in a systematic way to inefficient markets and generate alpha. That's been a tougher strategy over the last decade. It's part of why I really enjoy investing in emerging markets. So again, I happen to have a background in emerging markets and a particular passion for the countries and the secular changes I see.

But ultimately, what compels me to do this for a living, to run institutional accounts in emerging markets, is because I see the inefficiency, the structural inefficiency that exists in part because of retail participation, in part because of institutional unfamiliarity and overestimation of risk. Because you don't have the same liquidity profile and effectively the efficiency profile of developed markets,

In my view, it's very much the case that traditional, fundamentally based factors work very, very well in this inefficient asset class. I don't think that's enough. Style factors are out there. There are passive implementations that can be utilized. So it's important to develop proprietary signals and proprietary applications to

But I continue to find that taking signals that make sense from a fundamental perspective, systematizing them and pointing them toward a very inefficient asset class actually is an alpha generating strategy. And it has been over the last decade. And I'm happy to walk you through examples. I fully respect the fact that the beta of the emerging markets has been a tough ride for the last decade.

But from an alpha perspective, returns excess of benchmark, emerging market strategies have actually done quite well. So on that beta aspect, one of the ways that we present investing or coming up with expected returns for stocks and other asset classes is to look at the cash flow in the

In the case of stocks, the dividend yield, the cash flow growth, and then the change in valuations over time. And so when you look over the past decade, the sheer magnitude that the U.S. market has outperformed emerging markets and the dividend yields higher in emerging markets, the valuations have definitely are cheaper and have gotten even more cheap.

But what really surprised me in looking at the underlying data is the earnings growth overall for emerging and frontier markets just hasn't been there. It's lower than it was in 2007. And so in the bullish case for emerging markets was here's developing economies, they're growing faster, but it's not coming through in earnings. So why is that? What are we missing?

Again, I think it's a great point. And I appreciate the way you put it, sort of looking under the hood and looking into the details of what's happening with respect to various asset classes. Again, it's impossible to deny. If you look at the performance over the last decade of developed markets versus emerging markets, developed markets have been significant outperformers. It's been a decade of underperformance for emerging markets.

And just a couple of years ago, when I founded my firm, Global Delta Capital, my view, it was a good contrarian moment to take advantage of the valuation discount you referenced relative to developed markets. That felt like a good moment to get into emerging markets. And in the past two years since, the floor has only dropped out. There's been the geopolitical risk with China, of course, Russia now, Saudi Arabia. It's a very fair question.

And again, I appreciated the way you couched it as going deeper and looking at the details. So I'd like to respond to your question by doing just that and saying, if you look at the underlying country components within the emerging markets asset class, you actually see a very mixed picture.

And you see very significant underperformers that have dragged down the performance of the index. I'm thinking countries that are well known, like Nigeria and Turkey, that in many ways represent, you know, what certain people think of when they think of emerging markets, but

It has absolutely been the case that where there is conflict, where there is instability, that reaches down. It reaches down to impact the everyday citizen within these countries. It suppresses innovation, stifles growth, and it results in what you just said. It grinds economies to a halt and slows earnings.

What does work in my experience is market liberalization. When countries open up, when they embrace private sector practices, when they bring in leadership that is pro-business leadership,

That type of approach does tend to unlock an economy and send EPSs soaring. And I'll give you a couple examples. Again, when we think about the last decade, we think about this narrow run for U.S. tech-based securities. But in reality, there have been pockets of the emerging markets that have held up just as well.

and I'm thinking of India and Vietnam, even Saudi Arabia and the UAE. These are all markets that have embraced free market tendencies. And we actually see, again, not at the asset class level, but when you point down to individual countries, there have been pockets of tremendous growth within the asset class. And what that tells me is two things from a practitioner perspective.

The big picture is you really got to think about emerging markets at the country level. One of my favorite characterizations is emerging markets is not a region. That's a core characterization of emerging markets. The correlations between one country and another country, their return profile in EM is very low relative to the correlations of a couple markets relative to each other in developed markets.

And that's an advantage that investors can use when building an emerging markets portfolio. Because what moves these countries is idiosyncratic and because there's such a local orientation to these markets, you can actually build a portfolio that's very diversified across countries and has a nice diversifying effect of smoothing the volatility that's present market by market. So that's a significant benefit of that dispersion that I mentioned within the asset class.

The other take on it is, of course, from a perspective of active management, we can use insights like the ones I've just described, that what's happening in one country may very well look different from what's happening in another, to tilt portfolios into where those return opportunities are. So my view is emerging markets, very inefficient asset class. As we talked about before, factor performance can be very profound.

We can tilt portfolios into those countries that are embracing the liberalized economic practices and smooth volatility. So I've talked a lot, but basically what I'm getting at is this profile lends itself toward a high sharp or a high information ratio type strategy where, again, you can seek out the return opportunity and diversify the risk.

Obviously, as retail investors in our shows money for the rest of us and we're often asked who's the rest of us. But but one frame, it's people that can't hire firms like yours to select, you know, run institutional portfolios. So as retail investors, what I'm hearing you saying is probably buying a broad based ETF isn't the best option, particularly because of the maybe the high weight in China.

There's country-specific funds. Would you suggest that investors find, for example, one of the holdings that I've held for a number of years is the Wasatch Emerging Growth India Fund. So, I mean, they're an active India fund finding solar smaller cap growth companies in India. Is that not necessarily that fund? Is that sort of where we should be heading as individual investors to take advantage of some of the opportunities you outline in your book?

Yeah, thanks. I can't speak to individual funds, but I think absolutely you've captured sort of where I'm going. And I understand what I'm managing internally is an institutional strategy that may not be investable for your listeners, but active management is widely accessible for retail investors. And so I'm highly aligned with what you just said. I think it's important for all investors, whether institutional or retail investors,

When investing in emerging markets where I see real structural opportunity from a beta perspective, as well as an efficiency, very, very important to utilize active management within the asset class for the reasons you mentioned before.

And China is a beast unto itself. We can talk through China as well. But there are a variety of ways of accessing active management. I personally prefer a diversified approach rather than a country specific approach because there can be so much country risk. And again, you can capture the benefit of diversification by using multiple countries and emerging markets. Far and away, the greatest source of risk is countries.

country risk. So, you know, ultimately, I've said a lot once again, but I recommend an active, diversified approach to global emerging markets. Before we continue, let me pause and share some words from this week's sponsors.

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So when you think about your portfolio with China just wrapping up their party congress, which from what I have seen or read, basically reworked the standing committee. So everybody on that committee leading the country basically is, trying to think of a kind word to say, but basically very closely tied to President Xi to where he's going to be president probably for another four years beginning in 2027.

How do you, you know, as an active manager, one, are you underweight China? And two, you know, what are your thoughts given this recent party Congress in terms of, you know, do you, is this just a country we should write off or are there still pockets of opportunity there?

You're right. I anticipate President Xi certainly fills out his third term. He changed the law about four years ago now to enable a president to have a tenure beyond two terms. So now he's in his third. And in fact, he adjusted the law to allot himself a lifetime term, if so elected. And, you know, where you're going, he has such a strong grip on the political situation within the country that

that he is well positioned to have a lifetime term as president of China. Is there a risk to that thesis? I do think so. When I think about China and I think about risk, in fact, the greatest risk that comes to my mind is socio-political risk and how does he manage this?

Going forward, zero COVID has been a very challenging situation. The zero COVID policy within China, it's been challenging from an economic perspective where we saw an economy that was roaring full speed ahead and the fastest country, fastest growing country on Earth with a huge economic impact.

I mean, typically when I see high growth profiles, it's from countries that have a small economic base. But China had such a large economic base and was growing so quickly. It was very compelling. That has grounded to a halt under zero COVID. And I think that that's also been reflected in the people themselves and growing unrest and discomfort there.

So one catalyst that I'm watching is potentially President Xi declares victory on zero COVID. We did it. He says that the, you know, the policies he had in place are deemed successful and it's time to reopen. And quite honestly, I do think that's a matter of time.

I also believe it's way too early to count China out. China, over the last couple of years, as I described with zero COVID, has been challenging both internally and externally. And we've seen that even here in the U.S. as global supply chains have been disrupted.

However, it was just a couple of years before that, that, you know, President Trump was in office and he had declared a trade war with China. And many pundits and investors, including myself, were saying, hey, you know, this isn't a trade war. This is a tech war.

And China's investments in technology have been profound. The dollars contributed to technology have exceeded those in the developed markets. And given that they don't have a democracy government the way we do, they have a benefit of being able to plan for the long term. I have seen China masterfully execute against these long term deliberate economic development plans that

And my view is that there's always volatility. It's not always a straight road toward executing an agenda. My view is that China continues to have a very strong technological prowess. It's showed its ability to scale up technologies rapidly.

perhaps not developed within China, perhaps developed in the developed markets, but their ability to scale is profound. They have a very, very large middle class today, a middle class, in fact, that has never known, like a young middle class that has never known a life of poverty. This is a very strong consumer class. And once the economy reopens, my view is they continue to be a very strong economic player.

I'll just say one other aspect of China's growth strategy that I find really interesting and very important in the context of evolving geopolitical risk is the One Belt, One Road initiative that started to become executed on years ago.

China's presence is everywhere. It's everywhere. And, you know, Kim, you said this at the start, I've traveled to some of the most remote places on earth due to my work, not only investing in emerging markets, but also frontier markets.

Everywhere I go, I see people. I see the Chinese. I see sort of the Chinese restaurants, strip malls and restaurants. I take my kids with me oftentimes when I travel. I took them to the Great Barrier Reef and they literally came home speaking Chinese. China's got very deep economic pockets and having carved the pathways they have, again, I think it's too soon to count them out.

Even over this period of zero COVID, while the U.S. has turned toward onshoring, China continues to sign free trade agreements across the globe. They're signing them in real time across Asia with the Middle East. And again, you know, irrelevant and perhaps concerning to those of us sitting in the U.S., they've been buyers of Russian oil. And of course, the trade flow between Russia and China continues as well.

Yeah, it does seem that the Chinese are very entrepreneurial. They have been for millennia. You mentioned developing technology, in particular, it's referred to chip technology with some of the Biden administration's recent clampdowns on that. Will that have an impact? In other words, because I've read some things that say, well, you know, all the American executives quit the Chinese companies and now they're in a world of hurt. And that seems...

A little oversimplified. But to what extent is there now more difficult to get that technology, which could even propel China to invade Taiwan, where some of that technology is, I mean, they're manufacturing chips in Taiwan, many, many chips, and have the technology. It's a question that I quite honestly don't have the answer to, but I think it's a question that has to be asked and has to be acknowledged, and in my view just underscores

the point I had previously raised that China remains an economic powerhouse. And despite the fact that they've essentially shut down the country with respect to zero COVID, the stock market in China remains the largest stock market on earth with respect to liquidity that's driven by the local retail investor. It speaks to this very, very large population within China.

Again, the question is a really important one because it speaks to what will growth look like? Certainly within the emerging markets, Taiwanese semiconductors have been very strong performers over the past decade. So what happens in the context of investing in those investment opportunities? Geopolitical risk is significant. I think China, Taiwan and the potential for a war remains very much on investors' minds.

And ultimately, again, it speaks to how does this play out long term? China, again, has executed that one belt, one road framework. They have developed proprietary technologies. They, again, have exhibited their skill in scaling up those technologies. And what I've observed, and this is, again, coming back to the tech war that we all talked about so passionately pre-COVID, is

China is in a position to roll out their technology across the globe. And this is where I actually started my comments that technology has become commoditized. It's easy to access. It's a necessity. It's how people get their education today. It's how people in the developing world and often context access to health care. FinTech has been one of the fastest growing sectors in the emerging markets.

And if Chinese technology is empowering all of that, where is the loyalty very long term? This isn't a two to three year view, but maybe a 10 year view, a 20 year view, you

Few people are aware of the fact that Nigeria is posted to be the largest country on Earth in terms of demographics in the next couple of decades. Nigeria and China's ties are very, very strong. And so as China's relevance increases and their ties to Africa increase, and again, I mentioned the Gulf and other regions as well, where they've got very heavy exposure to

Again, I think of them as a continued geopolitical powerhouse and a country that can't be written off at this point. Mm-hmm.

Kevin, do you have any follow up questions? Having done Asian studies as my undergrad, having spent a lot of time, I think that one of the things that just has been proved over, you know, century over century over century is never count China out. And that's an oversimplification. But all of that, at least to me, in my understanding, you know, is very much in line with China's China's chasing what they feel they've lost.

We call China, when you're in Korea, Japan, they call it the Middle Kingdom. And they call it the Middle Kingdom for a reason because they see themselves as central to see them continuing to chase that. It's not really a follow-up question, but it does tie into this other element that I picked up a lot when I was reading the book when you talk about the difficulties in frontier markets and emerging markets with China.

with China and with others, there's this interesting interplay where you do mention, you can kind of see that many democratic countries perform in line with autocratic countries, just as far as different investments.

But there is this added difficulty when investing in these frontier and emerging markets or looking into them that many of them are much more autocratic nations and have histories of severe human rights abuses. And a lot of people, I think, are very justifiably kind of uncomfortable being involved with that. And you spend a lot of time talking in your books about, you know, looking for that stability, that investors do have a little bit more leverage because, you know, the countries want the money to flow in.

But investors, of course, need to make sure that they can get their money back out. But I think sometimes it feels like it can be an oversimplification to just say money will solve all the problems. What can we, I guess, keep in mind when we're looking at investing in countries and being involved in countries that have these human rights abuses that clamp down so much on the individuals and have those difficulties there?

Thanks so much, Camden. Such an important question. And I think really one that I appreciate the opportunity to highlight. Given the title of the book, Power of Capital, absolutely, capital is a powerful force. It not only gives investors an opportunity to generate a return, but it builds an ecosystem. And so as we deploy capital, we have to be very mindful, very thoughtful around what ecosystem we are reinforcing with our capital.

And so there is a notion of investing capital and this responsible, sustainable method that's become so heavily politicized in the current environment. And then, you know, we used to joke if it's not responsible investing, perhaps it's irresponsible investing. Ha ha. I don't know that I see it as a joke anymore. I think that there needs to be my view. And again, this is highly personal, but

There should be an ethos and understanding around how capital is deployed and what are the ecosystems that we're supporting. So I'm going to just kind of provide a little context to the question you asked me around autocratic governments. And does it make sense to think of them as about on par with democracies? And should we really be unconcerned about that profile? Just give a little context around it and then talk about how I think about.

We use that insight to responsibly deploy capital in a way that supports the ecosystem that we want to build, but also is non-concessionary, that also gives investors the returns they need given their capital. So just as a little context in the book, I talk through my analysis where I did run a historical return analysis on how do democracies fare relative to autocratic governments?

And we talked about country-specific risk in emerging markets and how it really depends on what are the underlying constituents. And the context of that analysis, what I found is exactly what you said. Performance across the two groups tends to look pretty similar. And I will tie that back to a few specific countries. So in the emerging markets at the time that I had run that analysis, the winners, the autocratic governments that had done quite well, of course, included China and

And so very well look different if we if we did it today. So China is the elephant in the room, as is the case oftentimes when you're talking about emerging markets, you have to talk about China. But other countries or another really important country to highlight that has an autocratic government that had that profile is Vietnam.

In many cases, in many contexts, Vietnam actually looks a lot like China, a very large population, not the size of China, it's a tenth of China, it's only 100 million people. So a very large population, very long coast, which enables it to be very active in terms of foreign trade. It's been one of the largest beneficiaries of foreign direct investment over the last decade. And as I mentioned before, you know,

was one of those countries that held up with US large cap tech stocks over the last decade. So these two countries in particular were sort of evidence that autocracies can show promising return profiles.

And again, just a little more context before I acknowledge the fact that we have to deploy our capital in a responsible way. One is we talk about China and there's no way to contest the fact that there are vast human rights abuses. I talk about in the book conversation I had with Samantha Powers, former U.S. ambassador to the U.N., who asked me, what on earth is China doing on the U.N. Human Rights Security Council?

It's very true. It's very palpable, very heavily reported. On the other hand, China has lifted a billion people out of poverty in the last couple of decades. There's no other group on Earth that's done that. There's no other government. There's no NGO. There's no nonprofit. That is incredible development that's occurred. And I think China would say that the means justify the end. And so we have to question that as investors, particularly sitting in a democracy. Do we do we agree with that profile?

The other advantage, kind of an awkward word, but the other aspect of running an autocratic government in a country that's developing is that there are great benefits to not having to deal with the discussion and the debate that comes along with a democracy.

I often think of China and India relative to each other because they both represent vast populations, very significant investments in technology, actually the second and third largest economies on earth. And I feel like that alone is a fascinating thought that emerging markets remain very niche in terms of investor allocations. Yet two of the three wealthiest countries on earth are actually emerging market countries. But

But China's path to development has looked very, very different than India's. India remains broadly a poor country. It remains in need of development. And China is different, as I talked about before. China's pace of development has been very rapid over the past couple of decades. And that's because China, you know, has executed the means they have in the name of development.

So I acknowledge that, you know, that's sort of the evidence that supports the case that, yeah, you can get a similar return profile either way. My view is, nevertheless, the issue is really important. And from an investment perspective, I see sort of two critical takeaways here.

One is that we do need to be mindful and we do need to evaluate companies, evaluate countries for the governance risks, for the social risks that are embedded within these potential investments. They are real. They are palpable. They are often overestimated. The corruption profile within countries is often overestimated relative to the actual corruption that's happening on the ground.

Nevertheless, the standards are certainly at a different level than they are in the developed markets. And again, I'm a quantitative investor. I research social signals and governance signals. And I see in my research that these ideas tend to be correlated with each other, come

Companies that tend to, you know, become flagged for controversies related to human rights tend to have some governance challenge associated with them as well. And so where there is that social risk, that human rights abuse from an investment perspective, that is legitimately a concerning, you know, from a returns only perspective, that is a concerning practice. It indicates that this is a management team that may not be ideally trustworthy.

So in that context, I think investors really should be investing cautiously, take these kind of externalities, exogenous, subjective, non-financial factors into account when running their analyses because they are critical. And then sorry, I know I've talked a lot again, but just one last point to kind of round out this thought on should we really be funding their ecosystems? I've seen time and time again, the power of capital growing.

and shaping the ecosystem for the better. Saudi Arabia is one country I've followed very closely, only recently opened up its market to international investors. Again, I say this cautiously because I know it's another one that exhibits just really grotesque and an awful record as it relates to human rights.

And yet I'm seeing how foreign capital is transforming the market. And the year preceding the opening of the market to foreign investors, they literally changed the weekend. They changed the weekend from Thursday, Friday to Friday, Saturday to align with investor standards. And since then, they have changed their social practices on the ground, not entirely, but certain aspects have been transformational. They've brought women into the workforce. They've brought women into education, sexism.

Saudi is posted to be one of the fastest growing countries on earth from an EPS, from an earnings perspective, largely driven by the growth of their workforce. Who knew if you employ double the number of people in your workforce by getting the other half of the population to participate, you can extract more productivity. As Saudi was opening, they were looking to international investors for standards. What types of disclosures are required? And I talk about this in the book.

Today, there are ESG reporting standards coming from the stock market in Saudi Arabia, still early days. But that's what the power of capital does. And my view is,

If we aren't there to fund it and to emphasize the standards, the considerations that we deem important, somebody will. And we've talked about who that will be, right? That it will be China, who does have very deep pockets, does have the pathways out there. Do we want to fund China's ecosystem? And do we want China to be funding others? I think these are critical questions. And again, speak to the power of capital. Asha, thanks. That's really helpful.

When we look at, and we've done episodes in the past on sort of the global dollar cycle and the fact that you see periods when the dollar is strengthening, that it actually can lead to slower economic growth, particularly in emerging markets that are dependent on those capital flows.

Are those cycles getting worse? And as an investor, do you hedge the currency exposure at all? Or is this just something that this is just part of the natural cycle and eventually down the road as these developing economies get bigger, become less dependent on the dollar, it'll be less of such a dramatic cycle?

Yeah, no, I think it's the right question in this environment where inflation is sky high, literally higher than has been experienced in a generation. Rates are rising very quickly. Investors are looking for growth.

They've sort of been taught a decade of bad habits around investing, as we said before, in a narrow set of securities in a single country, in a single sector, and sort of perhaps lost the benefits of diversification, but are thinking about it. And I think that prompts many investors to think about, are emerging markets the right place to be at this moment? You mentioned valuations earlier in our segment. My view is valuations are at a two-decade low for the asset class relative to developed markets.

So that speaks to perhaps the interest in emerging markets. But your question on the currencies. No, we don't hedge the currencies. I think hedging currencies for most managers, certainly not all, is a very expensive proposition in emerging markets. And typically, a more efficient way to hedge out currency risk is really through country diversification. We talked before that having a diversified portfolio of countries can smooth the volatility and that holds with respect to currency risk as well.

Honestly, David, the way you posed the question to me, my initial reaction is the future is now. In many ways, emerging markets, they certainly have U.S. dollar dependency, but their currencies are not solely tied to the U.S. dollar today the way they were. And I'm thinking in prior cycles like the Asian financial crisis, which was clearly a decimating event for the emerging markets.

In more recent cycles, what I've observed is that emerging markets actually recover faster than the developed markets do. They tighten rates faster. There's sort of an accommodation that citizens and investors locally are more accustomed to. And so that rate tightening cycle can end more quickly in the emerging markets.

Higher inflation for emerging market currencies actually means that they deflate in value, which makes their exports much more attractive to international investors. So that's another reason why emerging markets may very well revert or sort of rebound faster than developed market equities do.

I think that's particularly important in this environment where we talked before about China onshoring, where investors are hesitant to keep all of their supply exposures onshore in China. They're looking to diversify, either come back to this onshoring principle or what I hear also that is a China plus one approach. You know, let's let's keep some China exposure because we

We set up that infrastructure. We did it for a reason, but we should be diversifying. So as currencies are depreciating in certain countries, creates an opportunity for international developed market countries to diversify where their supply chains are sitting.

High level, my view is that investors are structurally under allocated to the asset class. I mentioned before, risk are overestimated. Some of the largest countries in the index have actually shown very strong growth. India, Korea, I'm thinking, you know, quite institutionalized in their practices today, well positioned to leapfrog ahead over the next decade.

So my view, I said this before, that two of the top three largest countries on earth are emerging market countries. I see this asset class as mainstream in every way except investor allocations. So looking out over the next decade, I see just a structural flow of capital into the asset class.

So on that note, India is a country that I've allocated to in my personal portfolio. And we do a monthly investment conditions and strategy report for our members. And we look at the valuations of many different countries and indices. And the one thing that stands out every time we do it, at least looking at the MSCI India index, is how expensive it is, even more expensive than the U.S. Yeah.

Is that being driven by just some of the largest, perhaps bigger cap companies in India? Or do you see cheaper valuations as you go further down the capitalization scale? Yeah, I think that's right. So that is true. India is very expensive. I mentioned earlier in my comments, a decade of underperformance for emerging markets. But if you look under the hood, certain countries have done very well and India is one of those. So you're absolutely right. The returns in many contexts have been realized. The valuations have been expressed. It's a

expensive country to own. When we were talking about single country investments, I mentioned, you know, I see risk with going that way and prefer more of a multi-country kind of global diversified approach.

I think you're exactly right. The other point I'd add, maybe just two more on underscoring the high valuations of India. India does persistently trade at a premium relative to other markets. Certain markets just tend to have kind of a consistent valuation profile and India does tend to trade expensive. Relatedly, it relates to the constituents within the countries. You asked about large caps.

you think of it as large caps, it's the tech companies, the tech companies that tend to have high growth profiles and large market caps within India and very, very high valuation. So I think that's right. And I also really would like to emphasize the second part of what you said. There are more listings, more publicly listed equities in India than any other country on earth. And so it speaks to the ability to invest

really far across the cap spectrum. And I think, you know, we just touched on it. Large caps are expensive. Country level, it's expensive. Lots of strong secular growth coming from the country and the investment opportunities in the small and mid cap space where the valuations in certain contexts continue to be very attractive. Well, we, we, Asha, we appreciate your time. Kim, did you have any other follow up questions as we wrap up?

No, I don't think so. I really appreciated your perspectives and your willingness to kind of dive into some of the stickier elements of investing in frontier and emerging markets. And I think that it's something that you do bring up again and again in your book just because every country kind of has its own flavor of opportunity, of risk, of experience. And

I think that was one of my big takeaways from the book that I really appreciated was that you do capture in many ways that diversity of experience. And that is kind of an important thing to keep in mind. And I think it's something that we can learn from and move into other areas of our lives and investments as well, is that there are times that we really have to look under that hood. So thank you for highlighting all of that.

Thank you. Thank you. It underscores the comment I said that emerging markets is not a region. These are very differentiated markets from one another. And when I was writing the book, part of it was to make the case that capital has a very significant role in society, to make the case that this asset class is rising fast and the future is now, as I said previously. But

But mostly to show that we have a shared humanity across the globe and many of the issues that we struggle with here in the U.S. day to day. Clearly, we're experiencing inflation the way they do across those markets as well. But it's about building a livelihood and building our families and doing something meaningful with our lives.

I see that everywhere I go. I appreciate your remarks so much, Camden, on the book. And if your listeners are interested, the book was actually just released this week. It's available on Amazon, Barnes & Noble, local bookstores. Love for you to check it out. And I'm on LinkedIn and you can find me on powerofcapital.com, globaldeltacapital.com if you'd like to continue the conversation. I have enjoyed teaching about investing on this podcast for over eight years now.

But I also love to write. There's a benefit to writing over podcasting. And that's why I write a weekly email newsletter called the Insider's Guide. In that newsletter, I can share charts, graphs, and other materials that can help you better understand investing. It's some of the best writing I do each week. I spend a couple of hours on that newsletter each week trying to make it helpful to you.

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