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Our hypothesis for a bull market in Emerging Markets equities

Our hypothesis for a bull market in Emerging Markets equities

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We believe that the decade ahead will be particularly good for emerging market (EM) equities. While this may come across as contrarian, it essentially rests on a handful of considerations: 

Weakness in the dollar. The big structural moves in (non-China) EM equities are nearly always against the backdrop of weakness in the US dollar. And we see all the ingredients for significant US dollar weakness over the next few years, largely a reflection of considerable fiscal stress in the United States. We believe the federal debt stock will continue to expand at what can only be considered a highly unorthodox pace. The US federal debt is estimated to have surged from nearly $17 trillion in September 2019 to $20 trillion in June 2020.1 And the flow is even more dramatic. The US federal deficit crested $1 trillion in 2019 at peak cyclical employment levels.2 We expect the federal deficit to significantly worsen over the next 2-3 years, even after the pandemic subsides, as the highly contested November presidential elections lead the winning administration to address longstanding grievances associated with socioeconomic inequalities.

Figure 1: Emerging market equities and the US dollar have been negatively correlated

Performance of the US dollar vs. returns of emerging market equities over the past decade

Source: Bloomberg, L.P. as of 8/7/20

The right cocktail. An environment where interest rates and energy prices are low, along with a pronounced trend against the US dollar, will likely create a situation where foreign capital flows and private investments will be directed towards non-US assets. That bodes well for emerging markets, which we think offer greater potential for growth as (non-China) developing countries by and large are constrained by insufficient domestic savings to fund investments necessary to lift structural growth. This starts the flywheel witnessed in previous periods of significant EM outperformance — foreign capital inflows beget credit creation, which in turn begets capital formation, growth, (formal sector) employment, productivity and significant earnings momentum. We see much of Latin America, Southeast Asia and parts of sub-Saharan Africa benefiting from this potential cocktail of a weak U.S. dollar, low global rates, sustainably lower energy prices and retreat from US dollar assets.

China. And then there is the other factor — the potential for a structural bull market in China. We have written previously about the outsized influence of China (45% of EM GDP, 41% of EM market capitalization3) and the fact that China’s economy could eventually dwarf all the other EM equities combined. This has already started to happen. China now accounts for more than 40% of the MSCI EM index, and we think it will continue to grow with the outstanding pipeline of Chinese unicorns going public in Hong Kong (and now also in the A-share markets). We believe China is the only significant macro growth story in a very dismal climate for worldwide growth. Having generated a plurality of worldwide growth over the past 10 years, China, we believe, will account for more than 50% of total worldwide growth over the next 2-3 years, in our view (and significantly all of global growth in 2020!). China’s GDP is rapidly closing the gap with the US, and it is now larger than the GDP of Africa, India, Russia, and all of Latin America combined. For the decade ahead, we expect China will remain the engine of global growth and only accelerate in terms of its increasing contribution to worldwide GDP despite likely lower, but higher-quality growth.

We also anticipate that the China-US relationship will remain structurally challenged while likely causing high-quality Chinese companies to consider mainland China and Hong Kong as their preferred exchanges for company listings. This is an important turn with wide-ranging consequences that we think will lead to improved quality of companies listed on the exchanges, better investment opportunities for domestic investors and will result in yet another flywheel effect that will boost the performance of Chinese equities. We expect this effect to be very significant as China has among the highest household savings globally, estimated at 23% of the country’s GDP (based on International Monetary Fund data as of 2018) and 15% higher than global average. In the past, public savings were invested in real assets like infrastructure while private saving went into real estate. Indeed, China’s enormous wealth creation is anomalous in its lack of diversity. This historically has been a result of the dysfunctional domestic equity market, populated almost entirely with state-owned companies. The highest quality Chinese equities were inaccessible to domestic investors, having been listed predominately overseas (US American Depository Receipts [ADRs] and more recently in Hong Kong). 

Accessibility to these companies is changing rapidly. First, the Hong Kong Connect platform has opened a (south-bound) channel for domestic investors to invest in mainland companies listed in HK. Many of China’s finest companies have chosen to list in Hong Kong after changes to listing requirements, which permit dual-class shares (a staple of the ‘new economy’ governance globally). Meituan Dianping, Innovent Biologics, Wuxi Biologics among others have paved the way for even larger primary listings, including the rumored forthcoming $200 billion IPO of the Ant Group (the fintech arm of Alibaba).4 Second, growing US political pressure on Chinese ADR listings is encouraging a wave of parallel listings of companies like Alibaba and JD.com in Hong Kong, all of which become accessible for the first time to mainland investors through the HK Connect mechanism. Finally, the mainland exchanges are also evolving. In 2019, Shanghai’s tech-focused STAR Market (Shanghai Stock Exchange Science and Technology Innovation Board) was launched, modeled on New York’s Nasdaq. Meanwhile, the composition of the historic Shanghai and Shenzhen bourses has changed to reflect higher quality private sector listings, including such behemoths as Jiangsu Hengrui and Ping An Insurance. With these massive changes in accessibility (and relatively pedestrian real estate prices), we anticipate a tidal wave shift in asset allocation towards equities, analogous to what we witnessed in the United States in the 1980-90s when mutual funds democratized equity investing. And remember China has the largest savings pool in the world.

An observation. Markets have become enormously concentrated over the past 12 months. This is an anomaly we worry about. While much is bantered around the phenomenal rise of US tech giants’ capitalization and high valuations in pockets of emerging new tech companies, we see parallels in the EM landscape. There is a clutch of companies, which have heralded enormous attention and large amounts of investment dollars that we believe are structurally overvalued. These are often labeled with analogues (MercadoLibre, “the Amazon of Latin America”; Sea Group, “the Tencent of Southeast Asia”). While we are envious at having missed these early on, we would caution that lofty valuations and an uncertain path to profitably may result in losses as the long-term gravitational pull of fundamentals develops.  Avoiding these, and other potential landmines requires an active manager that is focused on identifying high quality companies with strong competitive positions, balance sheets, cash flows and other factors that will allow them to thrive in the post-COVID-19 world.

We believe the challenging US and global circumstance make a very strong case for EM equities that offer a large investment opportunity set and several extraordinary companies with many real options that will manifest over time. The EM flywheel effect along with the positive developments around Chinese equities certainly bode well for the EM equity asset class, which we believe will be among the most attractive investment opportunities over the next decade. 

As of June 30, 2020, Invesco Oppenheimer Developing Markets Fund had assets in the following companies: Meituan Dianping (1.01%), Innovent Biologics (0.85%), Wuxi Biologics (0.33%), Alibaba (5.09%), JD.com (0.00%), Jiangsu Hengrui (2.31%), MercadoLibre (0.00%), Amazon (0.00%), Tencent (7.81%), Sea Group (0.00%) and Ping An Insurance (2.94%).

As of June 30, 2020 Invesco Oppenheimer Emerging Markets Innovators Fund had assets in the following companies: Meituan Dianping (0.00%), Innovent Biologics (1.90%), Wuxi Biologics (1.30%), Alibaba (5.09%), JD.com (0.00%), Jiangsu Hengrui (2.31%), MercadoLibre (0.00%), Amazon (0.00%), Tencent (0.00%), Sea Group (0.00%) and Ping An Insurance (0.00%).

1  Source: Brookings “Policy 2020: How worried should you be about the federal deficit and debt?” 7/8/20.

2  Source: Brookings “Policy 2020: How worried should you be about the federal deficit and debt?” 7/8/20

3  Source: World Bank data, as of 7/31/20.

4  Source: Reuters, “Exclusive: Alibaba’s Ant plans Hong Kong IPO, targets valuation over $200 billion, sources say,” 7/8/20.

Important Information:

Image Credit: Song Heming/ Stocksy

Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks. Investments in securities of growth companies may be volatile. Emerging and developing market investments may be especially volatile. Eurozone investments may be subject to volatility and liquidity issues. Investing significantly in a particular region, industry, sector or issuer may increase volatility and risk.

The opinions expressed are those of the author as of August 13, 2020, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial advisor/financial consultant before making any investment decisions. Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state tax laws are complex and constantly changing. Investors should always consult their own legal or tax professional for information concerning their individual situation. The opinions expressed are those of the authors, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.

Holdings are subject to change and are for illustrative purposes only and should not be construed as buy/sell recommendations.

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Ancient technology turns plant-based cheese into ‘something we want to eat’

Credit: Photo: Department of Food Science To produce plant-based cheeses that feel and taste like dairy cheese, scientists have their sights set on fermentation….

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Credit: Photo: Department of Food Science

To produce plant-based cheeses that feel and taste like dairy cheese, scientists have their sights set on fermentation. In a new research result, University of Copenhagen scientists demonstrate the potential of fermentation for producing climate-friendly cheeses that people want to eat. 

Nearly thirty kilos of cheese are eaten by the average dairy-loving Dane every year. But increasing pressure on Earth’s resources and climate change call for our food system to turn in a more plant-based direction. As a result, scientists are looking into how to transform protein-rich plants like peas and beans into a new generation of non-dairy cheeses that possess the similar sensory properties as the dairy-based ones that humans have enjoyed for thousands of years.

Several plant-based cheeses are already on the market. The challenge is that plant proteins behave differently than milk proteins when trying to make cheese from them. To meet this challenge, producers add starch or coconut oil to harden plant cheeses, as well as an array of flavourants to make them taste like cheese.

But it turns out that this can be done with the help of nature’s smallest creatures. In a new research result from the University of Copenhagen’s Department of Food Science, researcher Carmen Masiá has succeeded in developing plant-based cheeses made from yellow pea protein with a firm texture and improved aroma profile. She was able to do so by using the same natural fermentation process with bacteria that we have used with cheeses made from milk for thousands of years.

“Fermentation is an incredibly powerful tool to develop flavour and texture in plant-based cheeses. In this study, we show that bacteria can serve to develop firmness in non-dairy cheese in a very short period of time while reducing the bean-like aroma of yellow pea protein, which is used as the main and only protein source,” explains Carmen Masiá. 

Fresh cheese after eight hours

The result builds upon a research result from last year by the same researcher, who found that yellow pea protein constituted a good “protein base” for making fermented plant-based cheese. In the new result, the researcher examined twenty four bacterial combinations made from bacterial cultures supplied by the biotech company Chr. Hansen, where Carmen Masiá is completing her Industrial PhD.

“The whole point of this study has been to combine the commercially-available bacterial cultures that are suitable for the fermentation of a plant-based raw material, and test them in a pea protein matrix to develop both taste and texture that would be suitable for a cheese-like product. And, even if some bacterial combinations performed better than others, all of them actually provided firm gels and reduced beaniness in the samples” says the researcher.

To study the behavior of the bacterial combinations, the scientist inoculated them in a protein base made of yellow pea protein. After only eight hours of incubation, the result was a firm “cheese-like gel” reminiscent of a fresh soft white cheese.

“All bacterial blends produced firm gels, which means that one can get a fermentation-induced gel without necessarily adding starch or coconut oil to the base. From an aroma perspective, we had two goals: To reduce the compounds that characterize the beaniness of yellow peas, and to produce compounds that are normally found in dairy cheese. Here we saw that some bacteria were better at producing certain volatile compounds than others, but that they all worked great to reduce beaniness – which is a very positive outcome. Furthermore, all blends acquired dairy aroma notes to different degrees” explains Carmen Masiá.

Taste and feeling is everything

The researcher points out there is still a way to go to before achieving this plant-based cheese, but that research is on the right track. According to her, tailored bacterial compositions and cultures must be developed in order to achieve the optimal cheese-like characteristics. Furthermore, the plant-based cheese might need to mature over time so that it develops flavor and character, just as dairy-based cheeses do.

Finally, the new generation of fermented plant-based cheeses must be judged by consumers, so that the flavour is perfected. All in all, this is to make plant-based cheeses so delicious that people seek them out and purchase them.

“The most challenging thing for now is that, while there are a lot of people who would like to eat plant-based cheese, they aren’t satisfied with how it tastes and feels in the mouth. In the end, this means that no matter how sustainable, nutritious, etc. a food product is, people aren’t interested in buying it if it doesn’t provide a good experience when consumed,” says Carmen Masiá, who adds:

“One needs to remember that dairy cheese production has been studied over many years, so it’s not something that we can just mimic overnight with totally different raw materials. Nevertheless, there are many scientists and companies out there doing great progress in the field; I hope that we will get closer to making non-dairy cheeses that taste good over the next few years. We are getting there.”

The study was conducted in collaboration between the Department of Food Science and microbial ingredients supplier Chr. Hansen, a bioscience company that produces ingredients for the food and pharmaceutical industries, among other things. 

What is fermentation:

Fermentation is an ancient technique which originated in China. Today, it is used to make beer, wine, cheese, pharmaceuticals and much more. Fermented foods are preserved by initiating a fermentation process in which natural lactic acid bacteria and enzymes are formed. This is done as microorganisms convert sugars in the selected food into lactic acid, acetic acid and carbon dioxide. This makes food acidic and prevents the growth of putrefactive and pathogenic bacteria.

The first textual evidence of cabbage fermentation is found in China’s oldest collection of poems, Shi Jing (Book of the Odes), which dates back to approximately 600 BC.

About the study:

  • The researchers tested twenty four different bacterial compositions on a protein base made from yellow pea protein.
  • The study shows that all of the bacterial compositions produce a firm cheese-like gel, reduced the beaniness, and produced dairy-related volatile compounds.
  • The study was conducted in collaboration between the Department of Food Science and microbial ingredients supplier Chr. Hansen, a bioscience company that manufactures microbial ingredients for the food and pharmaceutical industries.
  • The study has been published in the scientific journal Future Foods
  • The research is funded by Innovation Fund Denmark (grant 0153-00058B)

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BGI Genomics breaks new ground in Saudi Arabian precision medicine

The Saudi Society of Medical Genetics Annual Conference 2023 was held in Riyadh, Saudi Arabia, on September 29-30, 2023. As the most authoritative academic…

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The Saudi Society of Medical Genetics Annual Conference 2023 was held in Riyadh, Saudi Arabia, on September 29-30, 2023. As the most authoritative academic conference on precision medicine in the Kingdom, this conference attracted global experts worldwide.

Credit: BGI Genomics

The Saudi Society of Medical Genetics Annual Conference 2023 was held in Riyadh, Saudi Arabia, on September 29-30, 2023. As the most authoritative academic conference on precision medicine in the Kingdom, this conference attracted global experts worldwide.

One of the highlights of the conference was the presentation entitled “Spatial-temporal sequencing and some large-scale application of precision medicine technologies,” delivered by Dr. Louis (Renyuan) Luo, VP of BGI Genomics West Asia, at the invitation of the Saudi Society of Medical Genetics.

Dr. Luo’s presentation discussed the importance of spatiotemporal sequencing technology in the field of precision medicine and its potential large-scale applications, introduced the company’s case studies, such as the world’s first multi-center project of newborn genetic screening, large-scale regional noninvasive prenatal testing (NIPT) coverage and extensive early screening project of colorectal cancer at Wuhan, Hubei province, China.

Besides sharing BGI Genomics research achievements and innovative applications in enhancing medical outcomes, Dr. Luo highlighted Genalive, BGI Genomics joint venture laboratory in the Kingdom of Saudi Arabia. This is the result of a localized strategic partnership aiming to provide cutting-edge precision medicine services, promote development and contribute to improving the country’s healthcare system.

The success of Dr. Luo’s presentation paves the way for deepening future localized collaboration and innovation in Saudi Arabia. BGI Genomics will continue to support the realization of Saudi Vision 2030 through active participation in global cooperation and exchanges in the field of precision medicine to enhance patients’ health outcomes.

About BGI Genomics:

BGI Genomics, headquartered in Shenzhen, China, is the world’s leading integrated solutions provider of precision medicine. Our services cover more than 100 countries and regions, involving more than 2,300 medical institutions. In July 2017, as a subsidiary of BGI Group, BGI Genomics (300676.SZ) was officially listed on the Shenzhen Stock Exchange.


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Swiss Writer Sentenced To 60 Days In Jail For Calling Journalist A “Fat Lesbian”

Swiss Writer Sentenced To 60 Days In Jail For Calling Journalist A "Fat Lesbian"

Submitted by BlueApples,

With Switzerland being the home…

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Swiss Writer Sentenced To 60 Days In Jail For Calling Journalist A "Fat Lesbian"

Submitted by BlueApples,

With Switzerland being the home of the technocratic vanguard tasked with ushering in new world order totalitarianism in the World Economic Forum, the recent sentencing of a Swiss-French writer for what could best be described as a thought crime should come as no surprise. Writer and social commentator Alain Soral was handed a 60-day jail sentence for chastising a critic of his after he took aim at their body image and sexual orientation. Soral lashed out at the journalist by calling them a "fat lesbian" among berating them with more vitriolic criticism. A Swiss court in Lausanne determined that Soral's scornful remarks constituted criminal acts of defamation, discrimination and incitement of hatred. The sentenced ultimately handed down to the Soral was a cruel irony even more surreal than any satirical polemic social commentary he could have written.

Soral's remarks occurred two years ago when he took aim at Catherine Macherel, a journalist who prided herself in using her platform to advance her advocacy for LGBT causes. The polemicist turned to Facebook to air his grievances in a video in which he described Macherel as "unhinged" for her activism. His remarks resulted in his arrest, conviction, and sentencing to 3 months in prison in April 2021. Soral's sentence was one of the first to follow sweeping legislation in 2020 which criminalized homophobic statements by broadening the scope of existing laws against discrimination to extend its protections to people on the basis of their sexual orientation. However, Soral was initially able to escape the prison time handed down to him following a successful appeal in December 2022, instead only receiving a fine as punishment.

While Soral was initially able to evade a conviction, prosecutors were relentless in their pursuit by instigating a further appeal which would ultimately lead to the maximum sentence the court could hand down. That six month prison sentence exceeded the original three month prison term he faced. The decision to penalize Soral under the full force of the law was applauded by LGBT groups across Switzerland as a testament to the success of the country's criminalization of free speech. “This court decision is an important moment for justice and rights of LGBTQI people in Switzerland,” said Murial Waeger, co-director of the lesbian activist group LOS. Waeger would go on to opine that “The conviction of Alain Soral is a strong signal that homophobic hatred cannot be tolerated in our society.”

While Soral's conviction serves as a blueprint for the weaponization of the Swiss justice system again critics of LGBT groups, the writer is somewhat of an easy target considering his controversial past and already checkered criminal record. Before moving to Switzerland, Soral was sentenced to one year in jail 2019 in his native France for an illustration he made in 2016, Soral was charged for a cartoon he published in the notoriously satirical newspaper Charlie Hebdo. His contribution to the polemic publication was featured on a page titled "Chutzpah Hebdo" which bore an illustration of Charlie Chaplin in front of the Star of David asking "Shoah, where are you?" in a play on words the court ruled was a criminal act of Holocaust denial. Although Soral was sentenced to a year in prison, he failed to show up to court for the sentencing, instead announcing his plans to appeal the conviction before seeking refuge in Switzerland.

The illustration which led to Alain Soral being convicted of Holocaust denial.

Ultimately, the controversies which led to Soral fleeing France would follow him to Switzerland. Amidst expanding legislation across the whole of Europe leading to thousands of arrests for remarks made on the internet deemed to be hate speech, it appears that there is nowhere on the continent that Soral or any dissident challenging  the narratives approved by the ruling elite can find safe haven in any longer.

Tyler Durden Wed, 10/04/2023 - 08:30

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