VALUE: After Hours (S08 E06): Where the Real EM Value Is

During their recent episode, Taylor, Carlisle, and Juan Torres discussed Where the Real EM Value Is. Here’s an excerpt from the episode:

[Juan] I would guess, I would say my personal opinion would be that’s kind of fair value. But when you look at the dispersion, you see some pockets of the market, which are really expensive. And then you see the cheapest quintile, which is where I prefer to do most of our research and investing.

That one is still very cheap, very attractive. It’s full of opportunities across the board. It’s very rich.

But the ones that are expensive, I think that are really expensive.

[Jake] So the spread then has gotten, feels like more blown out than last time?

[Juan] Yeah, I think so.

[Jake] What kind of stuff falls into the cheapest decile these days?

[Juan] So it’s very rich. It’s across all markets. I mean, you are able to find, you should be able to build a well-diversified portfolio, different iteration of different portfolios from that opportunity set just because you’re finding companies across all countries and all sectors.

And I think that the CAPE on that cheapest quintile is something very close to 9 or 9.5, something like that. And when we last spoke, it was 8 or 8.5. So that’s very attractive. And the fact that the opportunity set is rich, it’s really compelling.

And then you will find some countries which are way more interesting than others.

[Jake] But for me- Does it feel like in the US, perhaps where one of the knocks against the value stocks has been that quality was sort of pretty well-sacrificed as you worked your way down, lots of cyclicality. Does that feel the same in the EM world as it’s gotten a little bit more… It’s still relatively cheap, but has the quality that’s fallen into that where you would look, does it feel higher quality or lower quality than, let’s say, a year ago?

[Juan] The thing in the markets is that what counts is the countries. Because when the market gets fear or there’s uncertainty around the country, the market won’t care about the quality of whatever you’re holding. It’s going to throw everything out of the window.

And so the bad and the good will go out. And so we don’t tend to think about sectors that much. We tend to think about countries.

And then in the context of countries, things like Indonesia, MSEIM threatens Indonesia to downgrade the country from an emerging market into a frontier. And then the market just sells off. And it’s just a threat.

It’s just saying, if you don’t correct X, Y, Z, I’m going to do this next time around. And then the market goes down a lot. And then, I mean, for us, for my co-manager and myself, I mean, we go into the office with a smile on our face and we understand that there’s a risk, but there is a lot of opportunities in the market with 170 billion of market cap around.

And so that’s attractive. And then you have something like Brazil, which is still quite attractive, and Colombia, and China, because it’s such a big market. And that’s another thing, like, I don’t know if you remember, but I think that last time that I was on the pod, we were discussing the fact that China had become very uninvestable in the narrative of many investors.

And it’s funny, because I’ve been telling clients over the course of the last few months, many of those people, I haven’t heard them recognising that China was one of the best performing markets in the world in 2025. And the opportunity is that in the cheapest quintile, still quite attractive in that specific country. But then you go to the other side, you look at Taiwan, and Taiwan is looking very punchy.

And so you have a country which on a cyclically adjusted PE is trading at something like 32 times or 30 times CAPE. And then you have India, and India has always been recognised as being one of the most expensive markets in the world. Then India is like 35, 36.

So you have India, sorry, Taiwan now very close or closing that gap towards India. And then in Taiwan, then you have this one amazing company. It’s a very good company.

TSMC is making 13% of the benchmark nowadays. It went from 4.5% a couple of years ago to 13% today. And it’s trading at 65 times CAPE.

I think that’s punchy. And so I don’t know.

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