Australian-based emerging markets manager Remerga says, in a new note to clients, that investors should be wary of the Asian tech stocks, which have risen an average of 50 per cent in the past 12 months. The people benefitting are more likely to be management and private equity backers than the other shareholders.
The note, https://www.remerga.com/research/long-live-the-unicorn written by Remerga’s CIO, Craig Mercer, says that internet stocks in China and Korea, especially, have been buoyed by market exuberance rather than fundamentals.
Remerga, which has a strong ESG management bent in its processes, looks at its three guiding investment principles:
- Ensure alignments of interest between the owner/operator and minority shareholders
- Require superior ESG/Sustainability practices
- Assess the long-term growth prospects, the quality of the balance sheet and ensure the valuation is attractive.
Mercer says: “When you consider these foundations, there is a natural tendency to not own the Internet stocks in China and Korea. These markets have been buoyed by market exuberance. The adage that when the tide comes in all boats in the harbour rise rings true.
“Despite this, we remain very comfortable with our lack of exposure given the weak sustainability practices coupled with excessive prices. Risks are now very much skewed to the downside. The forward multiples on the Internet, Software and Services sector are three times that of the broad market multiple.
“In addition, there are a collection of high-quality companies with similar top-line growth, where valuations are highly attractive and sustainability practices superior. There is a little sacrifice of not owning the stuff everyone talks about at cocktail parties. Consequently, we are optimistic.”