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Geopolitical Unknowns❓

Geopolitical Unknowns❓

Ex-US Ideas: India, S.Korea

autonomous
April 27, 2023

GM folks,

As sentiment has swayed back and forth we can start to piece together the factors weighing on US markets and the broader economy this year into next:

Geopolitics 🌎
Consumer Strength 🛍️
Inflation / Interest Rates 🐡
Corporate Earnings + Guidance 📊

Why do we think Geopolitics is #1?

The short version is that we know the potential market impacts of those other factors. However, what could happen at the geopolitical level is the largest unknown. Markets reprice assets as new information comes to light that can be factored into the risk/return profile of said asset.

Consequently, when unknowns become known, markets move. The more opaque certain information is, the more aggressively assets reprice as they react to new info.

Geopolitical changes are often slow, abrupt and/or unannounced. There are also very few investment professionals who hyper-focus on geopolitics as a driver of outcomes.

For the long version tune into our Podcast on Substack this afternoon after markets close.

Let’s jet into some more stuff 🛩️

Ex-US: India, S. Korea

If you follow us here and our research department over on Substack you know that we have some conviction on India and we’re adding S. Korea to our Emerging Market watch-list. Here’s what we like about India:

Strong population demographics (lots of young people)

Democracy (largest in the world)

Winning business as US Co.s leave China

Strong Tech Infrastructure (fast and distributed internet access)

Strong Talent (consensus across Fortune 500)

English Speaking (makes off-shoring or international business easier)

S. Korea on the other hand is a fringier bet, but the local equity market outperformed the US since Q4 of last year by nearly 10% (S. Korea is blue).

The thesis behind S. Korea is based on a few converging themes:

Culture Export (K-Pop, Cuisine, Film/TV)

Strong Corporate Leaders (Samsung, Hyundai)

Geopolitical Positioning (key strategic US ally)

Technological Innovation (crypto, technology, chemicals)

To be fair the population demographics don’t look great compared to India. Again, a fringier bet. See below:

Here’s a performance comparison between US, S. Korean, and Indian equity markets since the end of last year. (US, S.Korea, India). See below:

These kinds of hypotheses can take time to manifest, but while US markets are doing well and geopolitical risk is growing, it is worth looking into some non-US ideas add.

We’ll be diving much deeper into this over the next few weeks. Stay tuned.