Welcome to the Morningstar series, "3 Stock Picks." I'm Holly Black. With me is Omar Negyal.
He is Manager of the JPMorgan Emerging Markets Income Fund.
Hello. Hello.
So, you've got three stocks from the portfolio to tell us about. Where would you like to
start? Well, let's start with TSMC, which is the
largest stock in the portfolio today. So, that's Taiwan Semiconductor. It's an outsourcing
manufacturer of semiconductor chips. So, its customers design chips and TSMC produces the
chips for them. And these are the things that make my phone
or if I had one, a fancy supercomputer around? They go into phones, high-performance computing,
all those areas that are really high-growth opportunities in the future. And that's one
reason we're really excited about this stock. It's really at the cutting edge of consumer
and technology trends, including 5G in the future.
So, is it a shining example of how emerging market dividend payers should work?
I think it's a really good example. One area that they're really positive on is in terms
of returning capital to shareholders. So, they're generating a lot of cash flow, which
is something we're always interested in. They're a highly profitable company because of their
dominance in their industry. But very importantly, last year, they announced a move whereby they're
really focusing on the absolute dividend per share. And they're looking to at least maintain
that dividend or hopefully grow it every single year.
And that's something we take for granted in developed market stocks quite often but quite
different elsewhere? Still actually quite rare in emerging markets.
So, emerging markets has a good dividend culture from a payout ratio perspective. So, companies
commit to paying out a certain percentage of their earnings every year. But in terms
of that absolute dividend per share, the progressive dividend companies, they are still quite rare.
So, where we can find them and buy good companies that can actually deliver that, we really,
really like that. Okay. What's stock number two?
So, stock number two is Ping An Insurance in China. It's a really successful insurance
company in China. That's still a great area in terms of under-penetration.
Because as people get more wealthy, they're more likely to take out insurance policies.
Exactly. And this company has already sold a lot of insurance. So, last year, they had
96 million policyholders. That sounds like a big number, but there's…
That's more than the U.K. population. But there's still a lot to go. And what we
really like about the company is not just that it has a very successful traditional
agency for selling these insurance products, but also its use of technology to sell. So,
it has 500 million people who use a Ping An internet service in one way or another whether
it's insurance or healthcare, or some other financial aspect or autos. Those users one
day can be hopefully transferred into becoming a paying customer of Ping An. And so, that
use of technology is a really positive sign of the management of this company.
Okay. And what's our final stock? Final stock is Banorte, which is a Mexican
bank. So, this is a bank which is quite diversified in terms of its exposure in Mexico. It lends
to infrastructure and government projects; it lends to companies and it lends to the
consumer. So, the infrastructure in case the wall falls
down. There's all sorts of infrastructure projects,
which are coming through in Mexico and I think there's quite a good growth opportunity there.
What's really positive about this bank is that they're very well capitalized. So, we
like the way the management balances the capital needs of the bank for those loans that it's
making, but also having cash that it can then pay to shareholders every year. So, we've
got a 50% payout ratio. And in times when the capital is above what they need, they're
very flexible in terms of paying out more to shareholders. So, we get a really nice
attractive yield from that stock. And banks often seem like one of the first
types of sectors in emerging markets that start paying dividends and start to really
tap into that growing wealth. Why is that? I think that's essentially a sign of under-penetration
in terms of the growth side, that they're still at the stage where as consumers move
up the wealth curve, as they're able to save more, but also then use financial products
and generate fee income for banks, there's quite a nice growth runway, if you like, for
banks to take advantage of and Banorte is a good example of that.
Well, thank you so much for your time. Thank you.
And thanks for joining us