Welcome to Maren Jock's Money the After Show. This is where we unpack all the commentary you here in our regular podcast. I'm Maren sum So Web. This week, John Steppeck, senior reporter at Bloomberg, author of the Daily Money Distilled newsletter, joined me to discuss my conversation with Jonathan Asante from manager at Your Car Investments. Jonathan started with you Carr Investments and this year after taking a short break from
the industry in twenty nineteen. Before that, he worked as Stewart Investors for fifteen years and I've been watching his career for some time. John, I don't think you've ever met Jonathan, and because he was you know, I met him in Edinburgh a few times. I'm not sure you ever did. What did you think about that interview?
Yeah, that was met but I thought that was great. That was really thought for working wine.
What thoughts were provoked?
I mean, it's EM's I met in markets of something that sort of have. I don't know what you think, but it feels as if they've almost vanished off the radar in a lot of ways when talking about markets. I mean, obviously that's partly because the US has sucked up basically all of the oxygen and all of the money. But it is also because obviously what he said about governance is absolutely correct, and it's interesting that they were onto that really quite early. By the sounds of it.
You're obviously China becoming more authoritarian is the kind of big one. But you know, things that he pointed to it like Turkey kind of you know, going off the
rails somewhat when it comes to governance. I thought that was a really interesting point, and also just emphasizing that point about governance is something that certainly we kind of forgot has developed market investors during the nineties and early two thousands, because there was that whole period where everyone was saying, yeah, it's all fine, you can stick as much money as you want in Russia. Capital is going to win out anyway, and then of course you find it, well, actually, no,
that's that's not how things work. Can do your world, and the person who is able to make the laws actually has much more power than the markets do.
Yeah. I mean I was into that as well, and I was particularly pleased that he talked about it like that because one of the things that I know is driven you mad and has always driven me mad. Is this idea that if you see economic growth in a country, if you see the GDP numbers going up, you're automatically going to see the stock market going up as well.
And there's decades of evidence to show us that that isn't true, but people still think it is, and they still write those articles going, oh, look, this company's getting richer, therefore you should buy the stock market.
Yeah, I mean, and that's I mean, the best example of that is actually, again so ones that came up in the conversation with China versus India, and you've been far putting your money and the Indian stock market at almost any point really in the last ten years, whereas in terms of the country that has developed most economically and you know, and certain metrics improve the lis of its own citizens more, then that would you'd have to
say that was China, you know. But but India has produced by far the best shareholder runs over that period.
And I suppose the other point, it's not just about the governance, and it's not just about the government. It's also about the valuations where things start. And whenever I write articles about look, economic growth is not the same as stock market growth. I tend to start with valuations, but next time I do it, I'm going to think more about what Jonathan said and start with governance.
Seriously, I think Russia is the very obvious one on that front. It's like you can have as many as you know, It's often been the cheapest market in the world, and there's often been points where you know, I would say, despite my kind of like long skepticism of it, that have been points would have thought that is so cheap. Surely to good nation, or she sticks some more, and of course you'd be able if you were a trading person, you could have made a lot of money in it.
But you know, and now that it's kind of like a pariah state and your capital's basically stuck there if it was there, And I think the risk is that, you know, you keep reading about people keep saying, oh, yeah, no, China is looking cheap and you know how you should stick some money, and just now you're thinking, well, I don't really see how this mentality can stand side by side. When there's articles on Bloomberg about how China could take over Taiwane. You know, you're kind of like, if you
if China invetes, time wine. What do you think is going to happen to any money you've invested in any Chinese stock? Just have a wild guess.
And particularly when you don't own those stocks. That right, well, exactly various mechanisms. But I just want John, before we go in a further I want listeners who haven't known you and I for a long time to know what you're doing here. Right. I know you think that their new listeners out here, and what you're saying is completely innocent, and I'm the only one who picking it up. But look, listen it okay. John always said Russia will never be
cheap enough. You should never buy Russia. There's too much that could go wrong. The geopolitical risk is too high, the government is too awful, et cetera. And I said, sometimes it's cheap enough. And there was a point when I wrote a column saying Russia is now so cheap it's pretty much discounting a return to communism or World War three, and that's not going to happen. So I
suggested people bought Russian equities. I was completely wrong. And what John's doing here is just letting you know that he was right there, right on the entire last five minutes have been it's a very sophisticated type of audio frolling of me.
Well, it's just a ninety eight percent your ratement with so I just need to tame that.
I was there's our personal conflicts aside the one one of the many things that I thought was very interesting in my conversation with Jonathan was his approach to ESG.
And I was really interested in the way that he looked at luxury goods companies. And he looked at it in terms of not the way they run their businesses and you could talk about that, but the clients that they have and where the money that their clients have
come from. And he talked about being concerned about investing in the big luxury goods companies because their clients represent capital flight from countries that really should be using their cash to improve the lives of their populations in general, rather than nicking it by handbags. And I thought that was really interesting because it was I think a correct way to look at ESG. This isn't about box ticking, this is about thoughtfulness.
We found it very difficult, and again we haven't had much chance to invest in them. We found it very difficult to invest over the years in luxury goods companies, and that's an even grayer area. And on the one hand, it's very aspirational and you know, people striving for material, to gain pleasure for material. On the other hand, we have we associate it and we have some evidence that it's also linked to political economies or an elite is stealing capital flight when it.
Comes back centered money not being shared and.
You know, ending up in London or Singapore. And it's interesting the Singapore government, i think, is thinking about this now as well. And so what you're doing there is you're trying to weigh up a number of gray areas. You know, one is is quite a positive sort of striving, and the other is actually there's a lot of capital flight involved in the developing world in some of these goods, and that's going against what.
Yeah, and that was really thoughtful because I was reading through the transcript and I saw various other ones and there saw louxury goods come up, and my immediate assumption was, Okay, there's gonna be something to be the factories and really make their stuff. And it wasn't you know, you're really it's absolute. This is a kind of capital flight, and I thought that's a really interesting we are look at it.
It's also is really sophisticated, and it's also only something that someone with genuine experience of emerging markets we'd think of because the rest is sorely you or can you know, set down and think, well, you know, hind bags fancy hand bags? Was wrongly our fancy hand bag except maybe skind an alligator to get it or something like that. I don't know, So yeah, I thought that was that was as you say it can that's that's real ESG rather than box taking.
It's genuine thoughtfulness about both the the S and the G in ESGN, and we don't come across that much. Also, I think of interest was going much for what you're saying about China and India that it was India where he said, well, he doesn't like to hick countries. He's very clear in saying India is the place where he finds the most companies that fit fit their criteria.
At the moment, we've tended to find more companies over the many years in India, and that's not that's because there are so many companies listed in India. It's the proportions are still quite low, but it's just that there are just so many and the stock market has been allowed to evolve in a sort of vibrant way. We would have hoped twenty years ago at the Turkey would have gone the same way, but under different leadership it hasn't. So that's a place where we find lots of companies.
We can find a few in Latin America.
That was interesting because people keep asking us, don't make China or India, China or India, and we tend to think only on the India.
Yeah, I mean the frustrating thing that India is that it always looks expensive and it's never not looked expensive basically the whole time you and I have been covering it. And I think, so I suppose you you probably just have to swallow that if it's you know, something that went to the cup. Also, obviously it's another argument for
active investment. And I don't know if maybe Jonathan was subtly making that point, because he did say it's partly a function of the fact that India has just got like thousands of companies, and it says it's a small proportion of them that is interested in but because there are so many that's actually still quite a big playing field,
even though it's a tiny percentage. So yes, so maybe Lissners if you if you do want to go into emerging markets, that's a very good argument for using active rather than passive.
Well, it's worth mentioning by the way that it is. It is the case a lot of pushback against US, obviously, but a lot of studies do show that outside of the US active management does that perform, not by much, not by much, but in the main outside the US, and particularly outside megacap US, the performance of active active managers tends to be superior. So, particularly in emerging markets.
I do think that if you're going if you're choosing be from passive active, you may be a lot better off with active.
Yeah, that was really interesting because I don't know if we're talking about the same study, but it was something that someone up for the FT and it was talking about why is active management processed? And yeah, absolutely, there was that point that at an institutional level where you get to pee lower fees, then there is a even though it's small, there's an OUE performance for everything except for US large caps.
This is not the first study to show this. I've written about it several times over the years, because you know, frustrated active managers keep commissioning the same research. I'm getting the same result. But because so much active management is desperately trying to attempt to be something they can't really be. Large cap America people get this general idea that passive is better in every environment, and it simply isn't. Simply isn't.
Interesting.
Yeah, interesting anyway, onto valuations, and I have pulled out for us the latest valuation metrics table from Schroders that you and I both like to look at. Thank you Duncan. If you didn't listen to Duncan on our podcast a few weeks ago, back, go back and listen to it. He'sully good and emerging markets as usual come out on the cheaper side. So cycnically adjusted PE twenty one percent below fifteen year median forward PE kind of bang on trailing pee, kind of bang on price a book kind
of bang on. So you know, in the great scheme of things, it looks relatively cheap, particularly compared to the US, which is stal on a CAPE of twenty eight sixteen percent above its usual level and price of book where it is on a level four point one forty three percent above. It's a historical level, I know. And you can argue that's all technology and you know that that much book value blah blah blah, But nonetheless it does
stand up what I mattered. I'll just tell you that the other places that look cheap are the UK well done, the UK always cheap, always winning on cheap, always winning on cheap. The cheapest cheapest of the large markets in forward pemp sixteen percent below a little above in CAPE. So you know, that's bit disappointing. Trailing PE is still is still cheaper price and book still cheap. America super expensive across the board. You know, the CAPE in the US is now double that of the US of the UK.
It's amazing.
Really Yeah, who knows when when it will when it will adjust that. That's why we have diversified portfolios.
That's why we have diverse FOO portfolios. Now at the end, last thing I want to talk about on Jonathan is that he for gold, bitcoin, gold. He's very modern Jonathan, very thoughtful. He thought about it a bit and then he went for gold, even though he doesn't feel one hundred percent comfortable with gold. You know, it's just not not his thing, and he hasn't done quite what he would have thought it would do over the last couple of decades, etc. Although I'd say it is doing what
it's supposed to do now. However, he would choose gold over bitcoin definitely, and I didn't talk to him about at the time, but I thought about it afterwards. I wondered, if you talk to him about not just bitcoin, but about cryptocurrencies in general, he would have a similar ESG feeling about them as he does about the big luxury goods companies, in that you can't blame the providers, but an awful lot of the users aren't people you want to have supper with.
Well, I mean, he did not for cash, and then can I twisted his arm which was bitcoin on gold? But I think when I mean, that's a really good point and bitcoin. The only thing I guess I would say is that I think the bitcoin probably beats handbags in terms of if you have to flee a country, and that is something that again an emerging market expert might actually we don't consider, but yeah, know it. There's no doubt that a lot of bitcoin usage, in crypto
usage in general is for nefarious stuff. And the question, and it's certainly not ESG. I suppose it demonstrating bitcoin and luxury goods is that Bitcoin's always had this. It's not ESG thing hanging over it. Whereas the idea that the luxury goods sector is ethically problematic because of what the goods are used for rather than how they're made is a really interesting insight.
Yeah. And the thing that I would have asked him if I'd known anything about it, and I might now ask people on our podcast is a question someone asked me an investment trust shovel or ask me at a lunch the other day. He said to me, what will happen if there is another Carrington event? Do you know what a Carrington event is?
I saw you see this on Twitter and I googled it, so I know what it is now.
Okay. The most intense geomagnetic storm in recorded history, which peaked on the second of September eighteen fifty nine during solar cycle ten. I've no idea what solar cycle ten is. That's not my area, but nonetheless it was incredibly beautiful. You can see the northern lights across the globe apparently, but it knocked out every single telegraph station everywhere. So what happens if there is another huge solar storm like that It was hypothetical but entirely possible, and it takes
out pretty much everything. What is bitcoin during a Carrington event? And that's why I would always choose golf.
I think that's absolutely fear turkey things. All you be tough to you have probably have to have your gold well, okay, probably, I'm just trying to think.
If it was I shouldn't bring this stuff on you? Should I join it?
I just thinking, so there was Carrington event and you had the gold, it's probably fine if you had the gold in a volt somewhere because that would be recorded, not in electronically, or at least some sort of paper trio somewhere. Possibly. Just try to think all this year register doesn't well.
Gone gone, gone, gone gone, So maybe it's only the stuff on the blockchain that would still be there when everything came back on again. But it is one of those things that is a reminder that if you hold gold, you are really holding gold for you know, to protect you against inflation, but in extremists, you're holding gold so that you can have it on your person in extremists. So is it a good idea to hold large amounts of of gold digitally or in a volt or some
a few sovereigns in your pocket all the time. There we go down a rabbit hole. We've gone, I think we better stop that. Thank you for listening to this week's Marin Talks Money the After Show. This episode was hosted by me Meren Sunset Weather alongside John Steffeck. It was produced by Summersidi additional editing by Blake Maple