When fund managers come to pitch their favourite stock at the annual Sohn Hearts & Minds conference, which will be held in Adelaide next month, there are two ways they can go.
They can play it safe by naming a stock that everybody knows, and that most people will gently nod their heads at. Or they can take a risk, and shock the room.
New York-based Beeneet Kothari of Tekne Capital Management is going down the second path. His stock pick is so out there that he’s had to write to the board of the Hearts & Minds listed investment company that tracks the selections pitched at the event because his choice violates their investment rules.
You get the feeling that Kothari can’t wait to hear the sharp intake of breath when his stock is revealed.
“I think money is made when you can pitch a stock that makes people wince before they get excited,” he says. “This is the kind of pitch where the first slide will make you want to vomit, and maybe by the last slide you might see some merit in what we’re saying.”
As a fund manager, Kothari is no stranger to living with a bit of discomfort. With the US sharemarket so richly valued, his main focus is hunting for emerging market winners. The divergence in valuation between the US and these markets is as wide as it has been in Kothari’s career, but he understands why some investors have simply given up on these opportunities.
In China, for example, it’s been a harrowing three years for investors; Kothari describes himself as one of the last investors standing. But while the recent rally in Chinese equities markets has been a relief, and helped produce some spectacular gains – one of Tekne’s top picks, the Nasdaq-listed, China-based data centre operator GDS is up 153 per cent in six months – Kothari admits he’s only just starting to play offence, after a long period of playing defence.
‘A stampede’
Among his top China picks are recruitment giant Kanzhun and online retailer PDD, neither of which have caught the recent rally in Chinese equities. But Kothari expects a lot more to come in the way of stimulus, arguing the economy is “like a giant pendulum, and when it swings, it’s going to swing for three years”.
The combination of lower rates, the central bank buying Chinese equities and a Chinese consumer who has plenty of savings to deploy will be powerful. “To me, it’s like a stampede. You just don’t want to get in the way of that.”
The threat of increased geopolitical tension after the US election doesn’t seem to faze Kothari, either. Instead, he’s betting that China has little choice but to become self-sufficient in key markets such as semiconductors.
“Export policy in the West has become so tough that the Chinese people, Chinese policymakers and the Chinese government have basically decided that if we’re going to have a semiconductor industry at all, we might have to make them on our own.”
What the Chinese have managed to do in electric vehicles, where they went from a bit player to being a dominant force in a decade, is an example of what is possible.
Tekne is looking at Chinese semiconductor stocks like NAURA Technology Group as a way to play this thematic.
Kothari’s previous Sohn stock pick was European e-commerce giant Delivery Hero, which has had a difficult few years: the stock is down 60 per cent since December 2021, but up 73 per cent year to date, as investors get behind its plan to spin off its Middle Eastern business Talabat onto the Dubai stock exchange. Kothari shares the excitement and believes Talabat “might have a bigger market cap than the entire company”.
He’s also the first investor we’ve met with exposure to Kazakhstan; Tekne is a holder of Kaspi.kz, an e-commerce conglomerate that has doubled in the past five years, and just bought one of Turkey’s biggest e-commerce players.
“I just want to be a moneymaker. So we’ll go wherever we think we can go,” Kothari says.
We can’t wait to see where he takes us with the Hearts & Minds pick.
The Australian Financial Review is a media partner of Sohn Hearts & Minds. This article was originally posted by The Australian Financial Review here.
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