Emerging Markets: A Growing Set of Opportunities
With growth portfolios becoming increasingly focussed on China, investors may develop a tendency to overlook the broader emerging markets universe.
To shed a light on some lesser-known opportunities, this infographic from BlackRock explores the evolving landscapes of Southeast Asia, Brazil, and India.
Putting Opportunity Into Perspective
Emerging markets often exhibit lower price/earnings ratios (P/E) when compared to developed markets. While this may suggest that the region is attractively priced, investors can also view emerging markets from a relative size perspective.
Here’s how the market capitalisations of several emerging markets compare to some of the biggest names in tech.
|Country||Total Country Market Cap (USD)||Comparable to||Company Market Cap (USD)|
As of September 2020. Source: CEIC, Ycharts
Investors often focus on tech companies when seeking long-term growth, but with valuations at their highest levels since the dot-com bubble, uncertainty could begin to rise.
That’s where emerging markets can come into play. A country such as Brazil, which contains over 400 listed companies, may offer enhanced returns and diversification when compared to a single company. To learn more, here’s a closer look at three emerging markets opportunities that might be flying under your radar.
1. Southeast Asia: A Rising Digital Economy
Southeast Asia (SEA), which includes Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam, is quickly emerging as the next digital giant. The region is currently home to an online population of 400 million people, a 53% increase from 2015.
With so many people going online, companies such as Grab, a local ride-share provider, have accumulated millions of new users. This spells good news for investors, with SEA’s internet economy expected to reach a gross merchandise value (GMV) of $309B by 2025.
|Year||SEA Internet Economy GMV* (USD)|
*GMV is the total value of merchandise sold through a customer-to-customer exchange site.
Source: Google, Temasek, Bain & Company
Favourable demographics are also contributing to this growth. The region is expecting 50 million entrants to its middle class by 2022 and has an average age of just 30.2 years. That’s roughly 10 years younger than the UK, and 18 years younger than Japan.
Furthermore, this growing cohort of wealthier consumers is already embracing technology. Ecommerce, a subsector of SEA’s internet economy, has added 100 million new users over the past 5 years, with GMV increasing from $5 billion in 2015 to $62 billion in 2020.
2. Brazil: Improvements in Gender Diversity
Gender diversity has been a historical weak point for Brazilian companies, but female representation in the country has been improving. Here’s how the percentage of women on corporate boards differs between Brazil, emerging markets, and developed markets.
|Year||Brazil (n=53)||MSCI Emerging Markets Index (n=1,323)||MSCI World Index (n=1,584)|
Brazil surpassed the emerging markets average in 2020 thanks to increased awareness and initiatives by its financial sector. Brazil’s B3 exchange, for example, was the first stock exchange in the Americas to sign the Women’s Empowerment Principles, an initiative by UN Women.
Greater female representation is welcome news for both investors and society alike. Research from the Boston Consulting Group found that companies with above-average diversity tended to be more innovative, generating a greater share of revenue from recently launched products.
3. India: Promising Opportunities in Healthcare and Real Estate
As part of its National Health Protection Scheme, India’s government is looking to provide 500 million people with government-sponsored health insurance. If progress is kept on track, health sector revenues could increase at a compound annual growth rate (CAGR) of 18%, making it one of the world’s fastest growing markets in the world.
|Year||Revenue from India's Healthcare Sector (USD)|
Achieving this goal will require participation from both the public and private sectors. For example, India’s government has pledged to increase public health spending from 1.1% of GDP in 2018, to 2.5% by 2025. Additionally, it allows 100% foreign direct investment (FDI) in projects such as hospitals.
India is adopting a similar strategy for real estate, which has struggled to keep up with growing demand. In India’s top eight cities, the housing deficit amounts to over 3 million units.
To accelerate development, India’s government has allowed 100% FDI in residential and retail developments since 2018. Analysts believe that the country’s real estate market could become the third largest in the world by 2030.
There’s More Than Meets The Eye
Over the span of a few years, China has grown to comprise nearly 40% of the MSCI Emerging Markets Index—but this doesn’t mean that China should receive all of the attention from investors.
With almost 30 countries to explore, China and the opportunities discussed above are just a subset of what emerging markets have to offer. For growth-minded investors, giving this diverse region a closer look could be rewarding.
How to Avoid Common Mistakes With Mining Stocks (Part 5: Funding Strength)
A mining company’s past projects and funding strength are interlinked. This infographic outlines how a company’s ability to raise capital can determine the fate of a mining stock.
A mining company’s past projects and funding strength are interlinked, and can provide clues as to its potential success.
A good track record can provide better opportunities to raise capital, but the company must still ensure it times its financing with the market, protects its shareholders, and demonstrates value creation from the funding it receives.
Part 5: The Role of Funding Strength
We’ve partnered with Eclipse Gold Mining on an infographic series to show you how to avoid common mistakes when evaluating and investing in mining exploration stocks.
Part 5 of the series highlights six things to keep in mind when analyzing a company’s project history and funding ability.
View all five parts of the series:
- 1. Common mistakes made with the team
- 2. Common mistakes made with the business plan
- 3. Common mistakes with the jurisdiction of the project
- 4. Common mistakes with the project and technical risks
- 5. Common mistakes with raising money
Part 5: Raising Capital and Funding Strength
So what must investors evaluate when it comes to funding strength?
Here are six important areas to cover.
1. Past Project Success: Veteran vs. Recruit
A history of success in mining helps to attract capital from knowledgeable investors. Having an experienced team provides confidence and opens up opportunities to raise additional capital on more favorable terms.
- A team with past experience and success in similar projects
- A history of past projects creating value for shareholders
- A clear understanding of the building blocks of a successful project
A company with successful past projects instills confidence in investors and indicates the company knows how to make future projects successful, as well.
2. Well-balanced Financing: Shareholder Friendly vs. Banker Friendly
Companies need to balance between large investors and protecting retail shareholders. Management with skin in the game ensures they find a balance between serving the interests of both of these unique groups.
- Clear communication with shareholders regarding the company’s financing plans
- High levels of insider ownership ensures management has faith in the company’s direction, and is less likely to make decisions which hurt shareholders
- Share dilution is done in a limited capacity and only when it helps finance new projects that will create more value for shareholders
Mining companies need to find a balance between keeping their current shareholders happy while also offering attractive financing options to attract further investors.
3. A Liquid Stock: Hot Spot vs. Ghost Town
Lack of liquidity in a stock can be a major problem when it comes to attracting investment. It can limit investments from bigger players like funds and savvy investors. Investors prefer liquid stocks that are easily traded, as this allows them to capitalize on market trends.
- A liquid stock ensures shareholders are able to buy and sell shares at their expected price
- More liquid stocks often trade at better valuations than their illiquid counterparts
- High liquidity can help avoid price crashes during times of market instability
Liquidity makes all the difference when it comes to attracting investors and ensuring they’re comfortable holding a company’s stock.
4. Timing the Market: On Time vs. Too Late or Too Early
Raising capital at the wrong time can result in little interest from investors. Companies in tune with market cycles can raise capital to capture rising interest in the commodity they’re mining.
Being On Time:
- Raising capital near the start of a commodity’s bull market can attract interest from speculators looking to capitalize on price trends
- If timed well, the attention around a commodity can attract investors
- Well-timed financing will instill confidence in shareholders, who will be more likely to hold onto their stock
- Raising capital at the right time during bull markets is less expensive for the company and reduces risk for investors
Companies need to time when they raise capital in order to maximize the amount raised.
5. Where is the Money Going? Money Well Spent vs. Well Wasted
How a company spends its money plays a crucial role in whether the company is generating more value or just keeping the lights on. Investors should always try to determine if management is simply in it for a quick buck, or if they truly believe in their projects and the quality of the ore the company is mining.
Money Well Spent:
- Raised capital goes towards expanding projects and operations
- Efficient use of capital can increase revenue and keep shareholders happy with dividend hikes and share buybacks
- By showing tangible results from previous investments, a company can more easily raise capital in the future
Raised capital needs to be allocated wisely in order to support projects and generate value for shareholders.
6. Additional Capital: Back for More vs. Tapped Out
Mining is a capital intensive process, and unless the company has access to a treasure trove, funding is crucial to advancing any project. Companies that demonstrate consistency in their ability to create value at every stage will find it easier to raise capital when it’s necessary.
Back For More:
- Raise more capital when necessary to fund further development on a project
- Able to show the value they generated from previous funding when looking to raise capital a second time
- Attract future shareholders easily by treating current shareholders well
Every mining project requires numerous financings. However, if management proves they spend capital in a way that creates value, investors will likely offer more funding during difficult or unexpected times.
Wealth Creation and Funding Strength
Mining companies that develop significant assets can create massive amounts of wealth, but often the company will not see cash flow for years. This is why it is so important to have funding strength: an ability to raise capital and build value to harvest later.
It is a challenging process to build a mining company, but management that has the ability to treat their shareholders and raise money can see their dreams built.
Listing Requirements: From Junior Explorer to Global Mining Company
The journey from a junior miner to a global company is a long route that requires a lot of money. This infographic outlines the listing requirements mining companies must meet when raising capital for each stage of a mineral deposit, from discovery to production.
Making it to the Top: Listing Requirements From Junior Explorer to Global Mining Company
Only a few companies ever meet the listing requirements of global stock exchanges, but the effort to list can be worth it.
In 2019, Newmont produced 6.3 million ounces of gold and earned a net income of $2.9B and returned $1.4B to shareholders in dividends.
This infographic from Corvus Gold looks at the requirements and stages a mining company could face along its journey from a mineral prospect to a global mining company.
The Odds of Discovery
Mineral exploration companies use drill bits that range in diameter from 76-320 millimeters to explore the subsurface. The deepest drill hole is the Kola Superdeep Borehole which measured 12.2 kilometers (7.6 miles). However, most mineral exploration companies rarely drill longer than a kilometer.
Finding a gold deposit, let alone an economic one is akin to using a hair to find a needle in the proverbial haystack. To mitigate this, a typical junior mining company improves its odds by building a portfolio of properties that show potential through hints of gold and other minerals revealed from surface sampling, aerial magnetic surveys, and historic data.
Then, to dig even deeper, a company can raise capital privately for the properties that show potential. Valuations of these mineral properties are largely subjective and difficult to establish. But if the company would like to raise further capital for more expensive exploration, it can tap into stock exchanges.
Canada’s Toronto (TSX) and Venture Stock Exchanges (TSXV) sit at the center of global mining finance. Over the past five years, companies listed on TSX and TSXV completed 53% of all global mining financings, amounting to $44 billion through 6,500 transactions.
Even an idiot can make a great discovery and drive a stock from three cents to three bucks, and those guys wouldn’t get funded privately. It has to be public.
– Ross Beaty, Founder, Chairman Equinox Gold
Risk Capital: TSX-V Listing Requirements
In 2020, there were 606 companies on the TSXV that have a gold property, or a property that showed potential to host a gold deposit. These companies met a minimum set of requirements to access public markets for further funding.
At this stage, a listed mining company will deploy capital to conduct geological sampling and drilling to produce technical studies that could improve the confidence of the presence of a mineable gold deposit.
If this round of work results in an improved understanding of a gold property, a company can move from Tier 2 to Tier 1 on the TSXV, allowing it to raise further capital to increase the scope of technical and economic studies.
TSX Venture Listing Requirements:
|TSXV Tier 1||TSXV Tier 2|
|Recommended Work Program||
|Net Tangible Assets||
|Management and Board||
At this point, a company should have a good understanding of the costs and methods to produce a profitable operation or the value of a resource. However, early investors take their profits and new ones are needed to take a mineral property to a mining operation.
One drill hole changes the game. It’s very hard to decide who gets to make it and who doesn’t. It’s a big gate, and yet very few make it through. But you have to let them try.
– Lukas Lundin, Chairman, Lundin Group
Financing Growth: TSX Listing Requirements
To develop and construct a mine, mining companies require larger amounts for development and construction, which requires a different class of investor and stricter requirements.
In 2020, there were 133 gold companies listed on the Toronto Stock Exchange, whose primary metal production is gold and/or own a gold property. These companies meet or exceed a set of listing requirements set out by the exchange.
The TSX has three categories of listing for mining issuers: TSX Exempt Issuers, TSX Non-Exempt Producer and TSX Non-Exempt Exploration and Development Stage. These requirements of these categories reflect the stage of development of the issuer at the time of listing. Exempt issuers are more advanced and so subject to less stringent reporting requirements.
TSX Listing Requirements:
|TSX non-exempt (Exploration & Development)||TSX non-exempt (Producer)||TSX exempt|
|Recommended Work Program||
|Working Capital and Financial Resources||
|Net Tangible Assets||
|Management and Boards||
|Distribution, Market Capitalization and Public Float||
At this stage, bankers and lawyers set up the financing of a project based on geological and economic studies. Good financing terms can enhance the potential value of a mineral deposit and attract investors.
But sometimes, just this one listing is not enough to allow a company or project to meet its full potential.
Expanding Shareholders: NASDAQ and NYSE Listing Requirements
Companies that require more capital or to meet corporate governance rules in the countries they work in can seek a listing on additional stock exchange markets outside of their home countries. There are several benefits of additional listings:
- Gain exposure and access to more capital
- Help in improving a company’s structure of corporate governance
- Attract more and better talent
- Improves the reputation of a company
The NASDAQ and New York Stock Exchange (NYSE) can improve access to the American market. There are only 76 gold mining companies listed on the NASDAQ and NYSE exchanges.
|Pre-tax income||$0 to $750,000||$2,000,000|
|Market Capitalization||$0 to $75,000,000||$2,000,000|
|Total Assets and Revenue||$0 to $75,000,000||n/a|
|Market Value of Public Float||$3,000,000 to $20,000,000||$100,000,000 or $40,000,000 (if IPO)|
|Stockholders Equity||$4,000,000||No more than $60,000,000|
|Minimum Share Price||$2 to $3||$4|
|Operating History||0 to 2 years||n/a|
Increased trading, world-class investors, and a well-run operation can deliver a mining company a lot of prestige and generate significant returns.
Ultimately, the continued success of the company will rely on its ability to maintain production and continue to deliver gold to the market. This all comes back to a company’s ability to find, develop, and exploit new gold deposits.
I just want to remind you that the real wealth in the mining industry is generated by FINDING something.
– Robert Friedland, Executive Chairman, Ivanhoe Mines
Building Mineral Wealth to Last
The project development timeline and mine lifecycle is a very long one. It can take decades to move from discovery to production. Each stage requires different amounts of capital and investors.
The odds of building a mine are stacked against a junior mining company—but for the few that grow through the listing process requirements, they can become the next great investment.
A mineral discovery is rare, but a successful gold mining company is even rarer.
Markets2 months ago
Prediction Consensus: What the Experts See Coming in 2021
Green1 month ago
Visualizing Countries by Share of Earth’s Surface
Green1 day ago
Mapped: The Greenest Countries in the World
Technology1 month ago
The 50 Most Visited Websites in the World
Money3 weeks ago
Mapped: The Wealthiest Billionaire in Each U.S. State in 2021
Technology4 weeks ago
Global Stars: The Most Innovative Countries, Ranked by Income Group
Sponsored4 days ago
The Carbon Footprint of Trucking: Driving Toward A Cleaner Future
Precious Metals2 months ago
How Every Asset Class, Currency, and S&P 500 Sector Performed in 2020