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Conversation Corner: Digital Economy Stock Deep Dive

Join Susan Gim and Colin Dishington in conversation about digital economy stocks held in the Global Emerging Markets Strategy.

Date published
4 May 2022
Susan Gim Client Portfolio Manager, Global Emerging Markets
Colin Dishington, CFA Portfolio Manager
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.

Regulatory information and risk warnings

This information is issued and approved by Martin Currie Investment Management Limited (‘MCIM’), authorised and regulated by the Financial Conduct Authority. It does not constitute investment advice. Market and currency movements may cause the capital value of shares, and the income from them, to fall as well as rise and you may get back less than you invested.

The information contained in this document has been compiled with considerable care to ensure its accuracy. However, no representation or warranty, express or implied, is made to its accuracy or completeness. Martin Currie has procured any research or analysis contained in this document for its own use. It is provided to you only incidentally and any opinions expressed are subject to change without notice. This document may not be distributed to third parties. It is confidential and intended only for the recipient. The recipient may not photocopy, transmit or otherwise share this document, or any part of it, with any other person without the express written permission of Martin Currie Investment Management Limited.

Martin Currie Investment Management Limited does not intend for this document to be issued to any other audience and it should not be made available to any person who does not meet this criteria. Martin Currie accepts no responsibility for dissemination of this document to a person who does not fit this criteria. The document does not form the basis of, nor should it be relied upon in connection with, any subsequent contract or agreement. It does not constitute, and may not be used for the purpose of, an offer or invitation to subscribe for or otherwise acquire shares in any of the products mentioned. Past performance is not a guide to future returns. The views expressed are opinions of the portfolio managers as of the date of this document and are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. These opinions are not intended to be a forecast of future events, research, a guarantee of future results or investment advice.

Please note the information within this report has been produced internally using unaudited data and has not been independently verified. Whilst every effort has been made to ensure its accuracy, no guarantee can be given.

Risk warnings – Investors should also be aware of the following risk factors which may be applicable to the strategy shown in this document.

  • Investing in foreign markets introduces a risk where adverse movements in currency exchange rates could result in a decrease in the value of your investment.
  • This strategy may hold a limited number of investments. If one of these investments falls in value this can have a greater impact on the strategy’s value than if it held a larger number of investments.
  • Smaller companies may be riskier and their shares may be less liquid than larger companies, meaning that their share price may be more volatile.
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The information contained within this presentation is for Institutional Investors only who meet the definition of Accredited Investor as defined in Rule 501 of the United States Securities Act of 1933, as amended (‘The 1933 Act’) and the definition of Qualified Purchasers as defined in section 2 (a) (51) (A) of the United States Investment Company Act of 1940, as amended (‘the 1940 Act’). It is not for intended for use by members of the general public.

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