Greg Jones EM Call Transcript


Greg Jones (continued): It's a really complicated question, and I'll try to be brief and break it down to a few components because we could talk about this for a long time. For the most part, and it's something we care a lot about, we strip away all the noise is earnings. And earnings have been lackluster in China over the last five years. And earnings revisions have generally been negative. As a consequence, MSCI China or the CSI300, point to point for the last five years through the end of 2019 didn't actually move a lot. Performance was pretty disappointing. And this is one of the primary reasons for the lag in performance of the EM relative to the U.S. This now appears to be changing and the outlook for earnings and earnings revision is much better for 2021 and 2022 than it has been for a long time. And there are several reasons for this: structural composition, the index–we touched on that as far as the entire EM opportunities set at the beginning. Some of this is cyclical, some of it is recovery after several years of retrenchment in certain industries; also, part of it is harvest opportunities after several years of investment. So, there are lot of factors at play, but it sets up for a much better earnings story and that presses point number one. Point number two, the noise. Our tough relationship with China in my opinion does not appear to be a partisan one; either party appears to want to take a tougher track with China. However, if Biden is elected, that relationship is likely to take on a more civil tone. And this is important because while there may not be significant movement on critical issues, there is likely to be progress on others. And one example is the Senate legislation which has received attention, yet to be passed by the house, which requires a review of the audit books and records of companies listed in the U.S. from China. And if not, the company will be subject to delisting after a three-year period. This is not controversial, but the way it's being presented China takes offense to. The sort of “poke me in the eye,” making this a sovereignty issue. It’s in the best interest of everyone to have greater disclosure and greater oversight. And these are the kind of issues that in the past China has done, but quietly and I don’t think the regulatory body in China, the CSRC, would have an issue with

this. But again, if the relationship takes on a different tone, they'll be progress on this front, and I think investors will benefit from that. I could go on, but I think I'll stop here. There is lot to say about China. M ay Poon: Thanks, Greg. Bringing us back to the beginning of the call when we talked about why investors should be investing in emerging markets over the long term. It seems like the answer here is that there really has been a shift towards growth, more focused on areas like technology, health care, and consumer sectors. But why your strategies , in particular? What gives you the confidence that you know your team will continue to deliver strong results going forward? Greg Jones: Well, my co-manager Pragna and I began working together in 1995. We've developed a unique chemistry complementing each other's inherent strengths and instincts in areas of expertise. We, as investors, have always focused on quality growth. We've always operated as global generalists constantly looking for best in class. We’ve traveled all over the world. We’ve met with hundreds of management teams. And many of our holdings are with companies that we have met with and have spoken to on a regular basis for the last five to ten years. And we believe strongly in our core principles: quality analyst revision, long runway, wide moat, and differentiated view. And then the strategy is focused with fewer than 50 names, and often closer to 40. It's focused in growth areas, as you would expect, often consumer, technology, health care. It's all country, all capitalizations. It is always focused on finding companies that fit our discipline and offer that long runway, wide moat opportunity. May Poon: Great, thanks so much, Greg. Clearly, experiencing consistency in investing in this area in particular is important to your continued success. So, with that, we'd like to open it back up to the audience to take questions. Joe Stein: The question I have is, in the Wall Street Journal, there have been a lot of articles every day regarding the U.S.-China relationship. But the articles that you see popping up a lot lately are on China-India. You have these two tax super powers that are basically buying.

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