Full Transcript
Susan: Hi, I'm Susan Gim, an Investment Portfolio Manager on the Emerging Markets Strategy for Martin Currie.
I'm here joined by Colin Dishington and we're just going to have a very informal discussion going into two of our stocks in the digital economy. We're going to focus on Tencent and SEA Ltd and we just wanted to talk a little bit about these businesses from Colin and the team’s angle and Tencent to start off with is a very interesting name and I'd love to hear more from you, Colin, about just the scale and scope of Tencent's business.
Colin: Thanks, Susan. And yes, Tencent is certainly well known for their two flagship businesses, firstly, social media and instant messaging app WeChat and secondly, they are the world's largest video game publishing business. But what a lot of people probably don't realise is that there are many other facets to Tencent beyond social media and entertainment.
If we look at financial services, for example, they are the leader in mobile payments by users and if we go completely beyond the consumer facing side, the second largest player in cloud technology in China and have a huge ambition to grow their business services division.
So, the scale of Tencent is relatively well known, but the scope is much wider than most people realise. And it's in the underlying areas like business services where we expect to see the company invest incremental capital and focus going forward.
Susan: Oh, that's really impressive. You know, Tencent is the second largest stock in the emerging markets benchmark. It's great to know more.
Let's talk a little bit more about what's going on when we think about these companies from a long-term growth opportunity and how we value these businesses as well.
Colin: Yes, Susan, long term really is the key. Despite undoubted pressure from a range of market participants, these businesses are ultimately managed to take advantage of long-term trends.
So you mentioned SEA earlier. SEA operates predominantly across Southeast Asia and Taiwan and, similar to Tencent, they do have a highly successful gaming franchise at the core of their operations. But alongside this gaming business, they've grown the region's largest and most successful e-commerce platform, Shopee.
Now Southeast Asia is home to over 680 million people, and e-commerce penetration is as low as 2 to 3% of retail sales in some parts of the region. When you compare that to China, which is often measured in excess of 40%, it highlights why we should be focusing on the long-term potential for these businesses rather than just how the next three months are going to pan out, for example.
Of course, Susan, another area where short-term and long-term dynamics can conflict is on the topic of regulation.
Susan: Yeah, I agree. Regulation has definitely been on the forefront, specifically when we think about some of our digital economy names in China.
What we've seen historically is that regulation in China usually lasts around 12 to 18 months and is diversified across lots of sectors that have been regulated. We're seeing recently some green shoots from the regulatory side.
This may have been obscured by what's been going on in terms of global asset volatility, but some of these include, for example, ongoing dialogs with the PCAOB between the U.S. and China, increasing focus from some of the larger companies on shareholder returns and buybacks, and then furthermore, some policy statements have been really supportive of emphasising the technology platform model for some of these companies. We as a team really are cautiously optimistic about the regulatory backdrop for this space.
Well, wonderful. Thank you so much, Colin. It has been lovely hearing more colour about Tencent and SEA and this internet space. We're really excited to share some of our insights from our team with our broader investment base.
Thank you so much for joining us on this podcast.
We should be focusing on the long-term potential for these businesses rather than just how the next three months are going to pan out.
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