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OPTO Sessions Kevin Carter on “the biggest opportunity in the history of capitalism”, Evergrande and picking the next Alibaba

Kevin Carter, the founder and chief investment officer at EMQQ, started his career in the active mutual funds business only to realise that the high fees weren’t profitable for retail investors and traders. That took him down the direct indexing path, which allows investors to buy stocks of an index rather than buying mutual funds.

The journey to investing in China for Carter was circumstantial. What started with a Google employee seeking out investing advice led to Carter becoming the go-to specialist in Mountain View, San Francisco. When more employees from the tech company heard of the China investment opportunity, they egged Carter to identify investments, and since then, the market has been a focus for him.

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The thought of investing in China in September 2021 rakes up doomsday visuals of an economic collapse in tow of real estate player Evergrande. “I don't think that the Internet and e-commerce companies will be meaningfully affected by Evergrande or whatever plays out there. The e-commerce story in China and the developing world is a secular trend,” Carter said confidently.

According to Carter, pangs of pain while the situation is being wound down may be felt, but China will navigate through it just as the US did when Lehman Brothers collapsed in 2008. “A lot of people are going to lose some money, but I don’t think it’s going to destroy China’s story,” Carter added.

“A lot of people are going to lose some money, but I don’t think it’s going to destroy China’s story”

 

For those, who are considering investing in emerging markets, “they really ought to be trying to capture the growth of consumption more than anything”. He points out that the emerging and frontiers sector has grown about 38% in the last decade.

Carter expects that growth to continue because, with retail infrastructure lacking in some emerging economies, the first-time access to the Internet via mobile phones will spur buying in segments that have remained untapped.

“China's e-commerce market is four times as much as India, Brazil, Russia, all of them combined, and it’s about twice as big as the US. The penetration rate of e-commerce is about 25% in China, and in the rest of the emerging and frontier markets, which we call ‘The Next Frontier’, it’s about 5%,” he said.

“The penetration rate of e-commerce is about 25% in China, and in the rest of the emerging and frontier markets, which we call ‘The Next Frontier’, it’s about 5%”

That said, EMQQ’s investment philosophy rests on actual growth, not notional gains.

“The investment decision is really two things, what to buy, and what’s the price.” The focus must remain on moats and growth, where high gross margins and usually high returns on equity are visible, he explains.

“The second question is the price tag,” Carter added, explaining that it is earnings that give the company its value, and a measure for that is the inverse of the PE ratio. Carter recommends that a back of the envelop calculation of value should govern whether it is a good time to buy a stock.

 

To find out more about Carter’s investment strategy and his thoughts on investing in the emerging market consumption story, listen to the full episode.

 

 

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