Free Weekly Email 3.18.25
Kuppy: "In Emerging Markets, You Go Buy the Coca-Cola Bottler"
Maggie Lake is joined by Praetorian Capital Management Founder and CIO Harris Kupperman to discuss the potential shift from US dominance to compelling opportunities in international markets. Kuppy shares why the US has been a capital "capacitor," why he's bullish LatAm, why Europe is an "emerging market," why MAGA may be bad for US equities but good for US nominal GDP, and a TON more.
Why the Uranium Shorts Are Wrong (Guy Keller interview)
It had been too long since we last spoke with Aussie funds management’s leading uranium bull, Guy Keller. He joined us on the show again to pick apart the enormous short-interest in uranium stocks, why EnCore was down 50% on last weeks news, how he’s thinking about portfolio management, the spot vs term debate, where incentive pricing now sits, what’s next for NexGen and plenty more.
The Reallocation
…the last 75 days have exposed a lot of portfolio managers who are now dramatically offsides. Imagine a hypothetical example where you’re a European pension fund, and you’re suddenly trailing your benchmark by over 10%. Part of it is the dramatic decline of all the US equities that have been overvalued for years, yet continued to get more overvalued. Part of it is the dramatic snap-back in European, Chinese, and Emerging Market equities that have largely gone nowhere for over a decade, despite retaining earnings and creating a lot of value. Part of it is the big rally in the Euro. After a decade of overweighting US assets against domestic ones, suddenly, it feels like the world has flipped on its head, all because of some Tweets.
Every day, I look at overseas markets ripping higher, as US tech leaks lower. Then I see commentators trying to make sense of it from an economic standpoint, but it’s not going to make sense until much later. For now, it’s all about fund flows, and PMs scrambling to get back to benchmark. I think this trend continues, and it continues for a while, especially as politicians demand that capital is reinvested back at home. It won’t be a straight line, and there will be a lot of volatility, but until PMs get back to benchmark, this is the direction of travel, and foreign markets are too illiquid to handle the flows. However, that won’t stop these PMs from trying. As my NVIDIA buddy taught me, never underestimate the pain of a benchmark bro, who’s desperately trying to catch his benchmark.
Great article by Kuppy. I have been moving into emerging markets for over a year. It looks like fund flows are finally going my way. If this continues, it will be a multi-year move as most people will not initially accept that there has been a change. I would not rush to get in if you missed the initial moves. Wait for a pullback and be ready to buy.
Cheap Chinese Cars Are Taking Over Roads From Brazil to South Africa
From Bangkok to Johannesburg to Sao Paulo, the streets are increasingly jammed with inexpensive compacts, crossovers and SUVs made by companies like Great Wall Motor Co., BYD Co., Chery Automobile Co. and SAIC Motor Corp.
While the Trump administration is expected to shield the US’s Big Three from Chinese rivals at home, and Canada and the European Union have placed tariffs on Chinese-made electric vehicles, buyers in emerging markets have welcomed Chinese cars and trucks with open arms — posing a new threat to growth-hungry global automakers.
In the AIA portfolio, I am invested in China. It is undervalued relative to the US market. There are many people in the West who are gaslit on China. China is becoming a manufacturing powerhouse not only with respect to volumes but also quality.
Three Reasons We’re Overweight Japanese Equities
In a world of rich valuations and heightened geopolitical uncertainties, we believe Japanese equities are well positioned to deliver attractive returns. Yet most investors remain underexposed to Japan with the average international equity mutual fund 6.9% underweight relative to the MSCI EAFE benchmark. 1 We think now is the time to close that gap. In fact, we’d argue it’s time to go further, to consider overweighting Japan, for the following reasons:
-Japan’s exit from deflation improves the macro backdrop
-Corporate reforms crossed a tipping point
-The market offers attractive valuations and strong balance sheets
Although I don’t have any Japanese stocks in the AIA portfolio, I invest in Japanese stocks in my personal portfolio. One of the main reasons I like them is the reforms being pushed by the Ministry of Finance and the Tokyo Stock Exchange.
For years, Japanese corporate managers have been under pressure from government policymakers, regulators, active shareholders, and proxy voting companies to improve the low returns on Japan Inc.’s capital base. Corporate governance reforms seem to have entered a new and accelerated phase recently. Management teams of public companies are more aware and accepting of the need to improve ROEs and returns to shareholders. Buybacks, for instance, increased dramatically in recent years. In 2024, ¥16.8 trillion of share buybacks were pledged – a 75% increase over the prior year.
It takes some work, but there is tremendous value in Japan. I just collect shares of net-nets and companies who announced they would begin buying back stock and paying dividends. So far it is working well.
That’s it for this week.
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Regards,
John Polomny