Welcome to Morningstar's 3 Stock Picks. I'm Holly Black. With me is
Andrew Ness. He's Manager of the Templeton Emerging Markets Investment Trust. Hello.
Hello. Good afternoon, Holly. So, you've got three stock picks for us from
across the world, across the emerging markets world anyway. Where would you like to start?
Let's start in South Korea. We will talk about Naver. Naver is one of South Korea's
leading internet companies. So, think of it as a mix of Google and Amazon.
So, it's the country's dominant search engine that's got greater than 70% market share. So,
that's the Google part. But it's also successfully integrated search with payments and commerce and
it's evolved into one of the country's leading e-commerce platforms. So, that's very much the
Amazon part. Now, in addition to those businesses, they've also got majority ownership in a company
called Line Corporation. That's a leading messenger platform in Indonesia, Taiwan and
Japan. That business is currently undergoing a merger with Yahoo! Japan and that's going to bring
new synergies, which will accelerate the path to profitability for that business. Then elsewhere
in Naver we see significant growth potential for many related platform businesses and that includes
financial services, entertainment, music streaming videos, you know, very similar to the types of
packages you get from Amazon Prime these days. The stock has performed very well this year. It's up
over 70% in sterling. It's seen as a beneficiary of Covid here our forecasts are for continued
high revenue growth, margin expansion. So, we're still very much happy holders of the stock today.
Okie dokie. On to stock number two. Our second stock, TSMC, or to give out
its full name, Taiwan Semiconductor Manufacturing Company. It's the world's largest semiconductor
foundry and that means it makes semiconductors for other clients, including most of the world's
leading fabless semiconductor companies such as AMD, Apple, Broadcom, Qualcomm, et cetera. And
the semiconductors that it produces, they are very much driving the digital revolution that
we're all living through. They are on track to be leading edge and their technologies leading edge,
they talk about 5 nanometer development and this is where it gets really interesting. So, 1
nanometer is a billionth of a meter. So, how long your fingernail grows in a second is 1 nanometer.
And the human hair is about 2.52 nanometers in diameter. So, that's the geometry is that
this company is working with in terms of sophistication. The stock has stops done well.
It's up 30% year-to-date in Sterling, but we're very confident on its future growth prospects.
Okay. And we'll go on to stock number three while I try and get my head around those nanometers.
Sure. Stock number three much more simplistic business. It's called Brilliance China. It's BMW's
joint venture partner in Mainland China. So, our thesis here is one of low penetration of premium
automobiles in China and continued demand for BMW cars. The stock has not been a strong performer
this year. The car purchasing environment has been weak as you may have expected,
although they do continue to outperform the local market in sales volumes.
It's trading at very attractive levels and we continue to like the name.
Well, you've stolen my point there because I was going to say it's a
really cyclical industry that is hit in times of recession. When do you expect a bounce back?
We are expecting – we're seeing recoveries already. As soon as society got moving again
in China, we started to see the food courts open and people moving to buying cars. And
if you think about the impact of Covid, people are shying away from public transport. So,
it's encouraging more use of individual transport solutions, so people potentially buying more cars
and it kind of rejects the thesis that we were all going to be doing shared autonomy
over the next a couple of incoming decades. So, it's very much been a beneficiary of Covid
in that sense. Although, yes, it has been cyclical weakened in the most recent time.
Andrew, thank you so much for your time. For Morningstar, I'm Holly Black.